A Northern California town that is practically full of billionaires is, believe it or not, going broke.
Portola Valley — population 4,397 — was once named the wealthiest city in America, with a current median per capita income of $250,000.
The LinkedIn co-founder and former Nike CEO call it home.
However, reports are circulating that the city is running out of money.
Why? The biggest cash drains are said to be a $2.1 million sheriff’s contract that has doubled over three years, as well as mandates to build 253 low-income housing units if city officials want to continue receiving the funding. to the government.
Home prices in Portola Valley are still very high, with a median price of $5.82 million in September. However, the area has historically limited the construction of multi-family housing complexes.
“If they end up having to put in low-income housing, I would expect that not only would that drive away buyers, but we’d also see an increase in housing supply as people want to get out,” he says. Northern California real estate agent Sam Fitz-Simon with Compass in Danville, CA.
How bankruptcy can affect a city – and its real estate
So far, Portola Valley home prices appear to be holding steady, despite reports of impending bankruptcy.
“There doesn’t seem to be a price drop yet,” says Realtor.com senior economist Joel Berner.
The median list price in Portola Valley rose 29.9% year-over-year in September compared with 0.2% for California and 1.5% nationally, Berner adds.
However, more homes are coming on the market.
“The number of homes for sale in Portola Valley has reached its highest level since the peak of [COVID-19] pandemic, – says Berner.
Inventory has grown 75% year over year – going from 16 to 28 listings. In comparison, California inventory is up 28% and US inventory is up 22.9%.
“Overall, I don’t think we’ve seen the looming bankruptcy have its full effect on the housing market,” says Berner, “although the uptick in homes for sale may be a precursor to a downturn. comers.â€
But there have already been some price cuts in Portola Valley.
In July, the Sun Microsystems co-founder reportedly sold his Portola Valley mansion for $35 million — which was 65% less than the $100 million it was originally listed for in 2018.
What happens when cities fall apart?
Of course, Portola Valley isn’t the only town to find itself in financial hot water.
As of 2020, 39 US cities, towns and villages had declared bankruptcy – including Stockton, CA; Central Falls, RI; and San Bernadino, CA.
What happens to them after they do?
Let’s look at Detroit as an example.
In 2013, the Motor City filed for bankruptcy, becoming the largest municipal filing in history with $20 billion in debt.
Some people actually left the city after Detroit’s bankruptcy. It’s only natural, as residents in this situation often worry about a reduction in city services – and for good reason. For example, after the city of Vallejo, CA, declared bankruptcy, 3 of the 8 fire stations were closed.
At the time, the median home price in Detroit was $101,800. Sales prices have risen annually every year since then, reaching $217,100 in 2023. That’s an impressive 113.3% higher than the average sales price a decade ago.
“Buyers, including investors, have benefited from low home prices in the area over the past decade, bringing energy and funds to the city,” says Realtor.com Senior Economic Research Analyst Hannah Jones.
The median sale price in Detroit in May 2024 was $250,000 – up 10.5% from just a year ago.
Recently, the Wall Street Journal even named Detroit “America’s Most Unlikely Real Estate Boom City.”
Detroit’s population was approximately 700,000 in 2013. In 2024, it is 633,000. After years of decline, it is finally on the rise again.
People like real estate investor Chase C. Hunter are investing in its future.
“Investors come to Detroit from all over the country because the market is like no other,” Hunter says.
Perhaps the same could happen to Portola Valley.
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