Facebook’s IPO and Local Housing Markets

There are millions of homes in the greater Bay Area in California.   If thousands of newly minted Facebook multi-millionaires seek their dream home in the area, how will local real estate prices change?  The NY Times presents a strong article.    In  my 2011 piece, I present evidence that liberal cities tend to issue fewer housing permits than other communities.   Albert Saiz has written an important paper documenting how  topography influences housing supply.    Combining the insights from both of these paper,   there won’t be much new housing supply in response to this demand shock so existing homes will be bid up in price.    What trickle down effects will this have on the rest of the market?  Bay Area foreclosures should decline and incumbent home owners will gain a windfall.  Property tax revenue will soar in these counties and this should help the local public schools.  There is a huge public finance literature documenting that school quality is capitalized into home prices and this second round effect will further gentrify these areas.  It will be a neat event study and somebody will publish a nice paper.

Switching subjects, I gave a Levine Lecture at UC Davis yesterday.  Here are my slides for my talk about the economics of climate change adaptation.

 

Author: Matthew E. Kahn

Professor of Economics at UCLA.

3 thoughts on “Facebook’s IPO and Local Housing Markets”

  1. Such events are not novel in the Bay area — Silicon Valley companies have been regularly producing cohorts of sudden millionaires for forty years. At this point, future cohorts are pretty well priced-in. I wouldn’t expect the Facebook IPO itself to produce an important spike in any of the data series that Prof. Kahn mentions.

  2. Why would property taxes soar? We have Prop 13. Houses are only reassessed when they’re sold. The Facebook millionaires will have higher taxes on their new houses, but most houses won’t be sold, and their owners’ property taxes will remain the same.

    Google went public in 2004, creating about as many millionaires as Facebook will create. Housing prices went up a little, and in Atherton one month 10% of the buyers were Google millionaires. Property taxes did not soar. For most California cities, public schools are state-funded anyway.

    Silicon Valley is already one of the most expensive housing areas in the country. The Facebook IPO won’t make much of a difference.

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