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What Happens When a City of Billionaires Goes Broke?

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By Julie Taylor, Adam Miller

October 28, 2024
3:47 pm
Los Angeles, CA

A town in Northern California that’s virtually full of billionaires is, believe it or not, going broke. Portola Valley—population 4,397—was once dubbed the richest town in America, with a current average per capita income of $250,000. Yet reports are circulating that the city is running out of money. Why? The biggest cash drains are reportedly a $2.1 million sheriff’s contract, which has more than doubled in three years, as well as mandates to build 253 low-income housing units if city officials want to continue receiving government funds. Housing prices in Portola Valley are still sky-high, with a median list price of $5.82 million in September. Yet the area has historically restricted the construction of multifamily housing complexes. “If they do end up being forced to put in low-income housing,

A town in Northern California that’s virtually full of billionaires is, believe it or not, going broke.

Portola Valley—population 4,397—was once dubbed the richest town in America, with a current average per capita income of $250,000.

Yet reports are circulating that the city is running out of money.

Why? The biggest cash drains are reportedly a $2.1 million sheriff’s contract, which has more than doubled in three years, as well as mandates to build 253 low-income housing units if city officials want to continue receiving government funds.

Housing prices in Portola Valley are still sky-high, with a median list price of $5.82 million in September. Yet the area has historically restricted the construction of multifamily housing complexes.

“If they do end up being forced to put in low-income housing, I’d expect that it will not only steer away buyers, but we’ll also see an increase in housing supply as people want to get out of there,” 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 seem to be holding steady, despite reports of impending bankruptcy.

“There doesn’t appear to be a price plummet happening yet,” says senior economist Joel Berner.

The median list price in Portola Valley was up 29.9% year over year in September compared with 0.2% for California and 1.5% nationally, adds Berner.

More homes are hitting the market, though.

“The number of homes for sale in Portola Valley has reached its highest level since the peak of the [COVID-19] pandemic,” says Berner.

Inventory is up 75% year over year—going from 16 to 28 listings. In comparison, California inventory is up 28% and U.S. inventory is up 22.9%.

“Overall, I don’t think we’ve seen the impending bankruptcy have its full effect on the housing market yet,” says Berner, “though the increase in homes for sale may be a preliminary indicator of a downturn to come.”

This 7,180-square-foot Portola Valley, CA, home is listed for $9,698,000. (Photo:Realtor.com)

But there have already been a few Portola Valley price cuts.

In July, the co-founder of Sun Microsystems reportedly sold his Portola Valley mansion for $35 million—which was 65% less than the $100 million it was initially listed for in 2018.

What happens when cities go broke?

Obviously, Portola Valley isn’t the only town to find itself in financial hot water.

As of 2020, 39 U.S. cities, towns, and villages had declared bankruptcy—including Stockton, CA; Central Falls, RI; and San Bernadino, CA.

What happens to them once 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 did indeed flee the city after Detroit’s bankruptcy. It’s only natural, since residents in this situation are often concerned about city services being reduced—and for good reason. For example, after the city of Vallejo, CA, declared bankruptcy, 3 out of 8 fire stations were closed.

Back then, the median home price in Detroit was $101,800. Sale prices have climbed annually each year since then, reaching $217,100 in 2023. That’s an impressive 113.3% higher than the median sale price a decade earlier.

“Buyers, including investors, took advantage of low home prices in the area over the last decade, bringing energy and funds into the city,” says Realtor.com senior economic research analyst Hannah Jones.

The median sales price in Detroit in May 2024 was $250,000—10.5% higher than just a year earlier.

Recently, the Wall Street Journal even called Detroit “America’s most unlikely real-estate boomtown.”

Detroit’s population was roughly 700,000 in 2013. In 2024, it’s 633,000. After years of decline, it’s finally on the rise again.

People like real estate investor Chase C. Hunter are investing in its future.

“Investors come to Detroit from all corners of the country because the market is like no other,” says Hunter.

Perhaps the same could happen to Portola Valley.

Source: Realtor.com