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Where is Silicon Beach? What is Silicon Beach?

Why Should I Care?

You can excuse those who live, work, or visit the western portions of Los Angeles County for being a bit confused over the geography. There is West LA, which seems to define either city west of the 405 from Santa Monica to El Segundo or the Realtor definition of the portion of the City of Los Angeles east of Centinela Ave., south of Wilshire, west of the 405 to Pico, then south of pico to an eastern boundary of Westwood Blvd to a complete southern boundary of National Blvd.

Then there is The Westside. This might be everything from West Hollywood to the beach cities from Malibu to Venice. The distinction of being from the Westside is that you have arrived and are part of the “scene” in LA.

 

Of course, the geography of Los Angeles County is already confusing due to the dominant city of Los Angeles being an amorphous blob of villages that get cut up by other cities with no apparent plan in mind. So you can be driving down Wilshire and have the street numbers change every few miles because you have gone out of Los Angeles into Beverly Hills, then back into Los Angeles, and then into Santa Monica.

The average person on the street is likely to think Westwood, Venice, and Westchester are cities, and that El Segundo is a village.

And to now add even more geographic confusion to our Angeleno way of life – Everybody now wants to be part of Silicon Beach, which may or may not be the same as many of the geographic sites listed above.

What is Silicon Beach?

The name Silicon Beach seems to have first emerged around 2008 to describe the fast-rising influence of tech companies on the look and feel of Santa Monica and Venice (a city and a village respectively). Both cities are almost unrecognizable compared to their former selves over just two short decades. Santa Monica is now a world-class city with real estate prices to match. Venice has radically transformed from a gang-ridden inner city mess to the capital of hipsterdom, and real estate prices have gone off the charts.

Culver City, the true home, and hub of the movie business, already had its foot in the door due to the redevelopment of that city during the ‘90s and early 2000 period. During that time, Culver City often led the nation in increased real estate values.

Other cities and villages began to get a side benefit from the influx of tech businesses and jobs, including sleepy El Segundo and Manhattan Beach.

 

Then DTLA happened. Out of the blue, the horrific downtown section of the second largest city in the US saw almost as many cranes as homeless people. In ten short years, DTLA has gone from being a place to avoid to a destination for entertainment, food, and doing business.

All of the other cities around Santa Monica/Venice vied for the coattails of Silicon Beach as the branding began to catch on. But the mega-catalyst came in like a meteorite and exploded the now world-famous Silicon Beach into the second most important tech area in the US. A swamp (environmentalists call this swamp a wetlands area) that had been the home to Hughes Helicopter and several local bird species became the undisputed motherboard of Silicon Beach.  (Happily, a compromise was reached that created a permanent nature reserve out a portion of the wetlands area.) The meteor was called Playa Vista.

 

In eight short years, the map below (compliments to TheRegistrysf.com gives you some idea of what happened in Playa Vista. Notice that the vast majority of the arrows are pointing toward one spot on the map. That would be Playa Vista.

How High Can Home Prices and Rents Go in Silicon Beach?

At least once per week, there is a national news outlet or magazine headlining the rise of Silicon Beach. The prices on purchase and rentals in the entire area have been skyrocketing. Now the big question everyone is asking is,  “What can folks really afford?” Affordability is the most critical component that will put a cap on rising rents and home prices.

One approach to finding the answer would be to use zero-based budgeting for the average resident looking for housing in that area by looking at everything but housing and trying to guess what folks spend. The numbers used in this evaluation were provided by various government statistics. All of the below is based on a single person unless otherwise noted.

 

 

Transportation

 

The cost of getting around town will vary greatly based on your personal preferences, but the low side would be $80 a month for a bus pass. Maybe you add another $50 for upkeep on a bicycle.

 

In the middle, an individual can lease a small car at $250, insurance at $100, and gas at $150. Repairs should be minimal on a leased car.

 

The lease on a pretty nice car would be $600, insurance would climb to $150, and gas to $200 for the upper-income earner.

 

Food

 

The national statistics suggest that we spend close to $1000 per month on food between home 60% and restaurants 40%.  An individual who is on a tight budget can eat for $200 - $300 a month if shopping at Costco or Walmart. Maybe add another $100 for Whole Foods. Where the average gets driven up is purchases of small amounts, packaged products, and fish. Therefore the low-income person could get by for $200, $350 for a middle, and $500 max on the home portion. Add 70% to that for eating out and you get $350, $600, and $850 for the big spender.

 

Utilities and electronics

 

There is no big advantage to being poor in this group, other than the fact that you are heating less space. Silicon Beach residents rarely need A/C and only a bit of heat, so this reduces overall utilities by a bunch. We will assume that the low-end earner is also wily about spending in this area, so $75 for power, gas, and water; $150 for cable, smartphone, and wireless.

 

The middle of the road user is likely paying $300 for basic utilities and $250 for electronics, while the upper end is $500 + $350. There is a decent advantage to sharing in this category, so the numbers go down pretty sharply if two people are sharing space and bills.

 

Health Care

 

The next largest expense is hard to pin down. The amount you spend is based on everything from your own personal health issues to your willingness to go without insurance. Others have their insurance paid by their employer. With Obamacare offering subsidies to the low end of the spectrum, there may be many who are paying close to nothing for health care. Those on Medicare typically pay around $250 for insurance but could have substantial out of pocket at times. The estimate for health care would be $100 for the low wage earner, $250 for the middle, and $500 for the high end. Keeping in mind that for many at the high end pay nothing, as the company is paying the premiums on Cadillac plans.

 

Other

 

For the purposes of this post we will create a large basket for other. This would include insurance, pensions, tobacco, liquor, entertainment, apparel, giving, education, and misc. The national statistics for a low wage single person indicate that this will be $800 a month. For the middle income, it only rises to $900. For the high-income group, there is a significant leap to $3000 per month with big increases in entertainment, pensions, apparel, education, and giving.

 

 

Time To Add It Up 

The low-income earner makes $15 an hour or $30,000 per year. We will assume no taxes at this level. Therefore the actual take home is $2500 per month. Transportation for this person is $130, food $350, utilities and electronics $225, health care $0 and other is $800 for a total of $1505. That leaves $1000 per month for rent. This will pay for a room or a bachelor in some areas of Silicon Beach. If this person gets a roommate, they can easily afford a one bedroom unit in some neighborhoods. But they are tapped out. If prices go up another 20%, they will need to move East of Culver City.

The middle-income person makes $30 per hour and pays some tax. The net is $4500 a month. Out of this, they will pay transportation of $500, food $600, utilities and electronics $550, health care $250 and other is $900 for a total of $2800. That leaves $1700 per month for rent. This is enough for a bachelor in most neighborhoods and a one bedroom in a few remaining areas. With a roommate who makes the low end, this team now has $2800 to spend, which is plenty for a two-bedroom in most areas. If paired with another middle-income earner, they now have $3400 which could even pay the mortgage on some condos or small homes.

For the high-income earner, we will assume $120,000 in earnings with $20,000 in tax, leaving $100,000 or $8500 per month. With transportation of $950, food $850, utilities and electronics $850, health care $500 and other is $3000 for a total of $6150. That leaves $2350 per month for rent. That will get a studio anywhere, or a one bedroom in many places. It is also probably enough (with tax savings) to purchase a small condo.

What is the bottom line?

 

There is room for rents and home prices to increase. All of the above models don’t even include the potential for these individuals to have large down payments from the sale of a home or other available funds. Even many living on pensions have two incomes above $100,000 and can easily afford $million homes with a good down payment.

 

San Francisco, New York, and other major hi-tech and financial centers have shown that the sky is pretty much the limit, and Silicon Beach is not yet in the sky category. And what Silicon Beach offers that the other International cities can’t is the combination of hi-tech, finance, entertainment, and unparalleled geographic advantages.

 

Thanks to http://flowingdata.com/2015/04/02/how-we-spend-our-money-a-breakdown/ for great data.

 

If you don’t agree with the numbers above, provide your comments below. Do you spend way more than those amounts on any of those categories in West LA or nearby?