The Facebook IPO has made a lot of my Bay Area neighbors very rich, at least on paper. And many more of my neighbors are hoping that Facebook’s IPO will set off a strong wave of housing demand that lifts local prices and finally consigns the housing bust to history. And I say to my neighbors: be careful what you wish for. Rarely are there winners without losers. Here’s what Facebook’s IPO – and the strengthening local economy – mean for the Bay Area housing market.

Over the past year, house prices have picked up and rents have been booming in the “Facebook Metropolitan Area” — the 10-mile circle around the Facebook’s Menlo Park campus, roughly from Foster City on the Peninsula down to Sunnyvale in the South Bay, plus Union City and Fremont just across the bridge in the East Bay.

Change in asking prices*

April 2012

Change in asking rents*

April 2012

Facebook Metropolitan Area

+1.4%

+12.0%

San Francisco Bay Area (including Facebook Metro Area)

-0.2%

+10.1%

United States

+0.2%

+5.6%

Note: based on the Trulia Price Monitor and Trulia Rent Monitor, which adjust for the mix of homes and neighborhoods. Changes are year-over-year.

Even before today’s IPO, home prices and rents were rising in the Facebook metro area faster than in the San Francisco Bay Area overall. As Facebook’s flush owners realize their gains, there’ll be even more money chasing real estate in the Facebook metro area and in the San Francisco Bay Area generally. This new wealth should push up prices more than rents since many of Facebook’s employees will make the move to homeownership. And, Facebook aside, job growth in the Bay Area is already strong, so the Facebook IPO is adding fuel to an existing fire.

The Facebook IPO will create lots of winners in the Bay Area. These include employees and investors, of course, who can spend their new wealth on homes or whatever else they want. Other winners are people and businesses who have what Facebook millionaires want – including homeowners looking to sell, luxury car dealers, exotic-adventure-vacation tour operators, and so on. The dry cleaner and coffee shop owners in Menlo Park will be happy, too, but Facebook won’t change their lives: Facebook employees might celebrate their IPO by buying a car ten times more expensive than their current clunker (just don’t drive it to work), but they’re probably not going to go from one latte a day to ten.

But because Facebook is in the Bay Area, its IPO will create losers. Here’s why. If Facebook were in Texas or North Carolina, developers would have been building new homes in anticipation of this day. But in the Bay Area, water and the hills leave little land for development: the area in the bay under the Dumbarton Bridge would be an easy commute to Facebook if you could only build housing on the water. In addition, building regulations make development difficult on the precious flat land that exists. As a result, little new construction is underway in the Bay Area – far less than in other metros with similar job growth. Furthermore, San Francisco and San Jose were spared the worst of the housing crash and have relatively few homes in foreclosure. Without new construction or foreclosed homes coming onto the market, Bay Area housing inventory is vanishing: it’s down 40% year-over-year.

So all that new Facebook money will be competing with the rest of us for the limited supply of homes and apartments. Even if you’re that luxury car dealer watching your sales go through the roof, the kid you just sold the Lamborghini to will outbid you for that home in Woodside. Rising home prices and rents – good as they are for current homeowners and for landlords – raise the cost of living in the Bay Area. That means that businesses across the Bay Area will need to pay their employees more to keep up with rising housing costs – or decide to conduct their business elsewhere.

These are by no means new challenges for the Bay Area. Steady demand for housing, combined with tightly constrained supply, has kept real estate prices in the Bay Area – and in much of California — among the highest in the country for decades. Before this recession, when people in the Bay Area said “housing crisis” they meant a shortage of affordable housing. The recession and drop in home prices pushed concerns about affordability into the background, with foreclosures and overbuilding taking center stage. But as the Facebook IPO sends home prices higher, we’ll look back at today as the day the Bay Area stopped worrying about falling prices and remembered how expensive it is to live and do business here.