Silicon Valley Housing Crunch

Rents and real estate prices have gone crazy in Silicon Valley and San Francisco. What’s going on? Is it sustainable or a high tech bubble all over again?

Housing Crunch
San Francisco residents are complaining about the high tech companies — Google, Facebook, Twitter, Apple — that have contributed to a leap in rental prices, with the median one bedroom apartment now costing $2,795, and considerably higher in some neighborhoods.

Meanwhile condos and houses throughout the Bay Area are selling with multiple offers at prices above list, and above the peak pricesof the housing bubble. All-cash offers are common, and real estate agents recommend a 30% down-payment to even get considered.

Part of the housing crunch in San Fran proper is caused by commuters to high tech companies, enabled by the controversial luxury buses with leather seats and wifi that transport young technologists to the tech titans of Silicon Valley.

Commercial real estate is equally affected. With the influx of high salaried workers, expensive boutique shops and fancy restaurants are replacing more modest establishments, driven out by the high rents.

The Great Inversion
Isn’t it just gentrification? Same story happening everywhere. Yes, and no. San Francisco prices have been rising for a long time, and the merely upper middle class are being priced out by the even better off.

A demographic inversion is continuing, with the formerly decaying and crime-ridden inner cities getting richer and the suburbs becoming the new home of the immigrants, as in European cities.

It Will Continue
For multiple reasons, the trend is likely to continue.

The population is growing. That puts upward pressure on prices close to where jobs are.

Income inequality is increasing. There are no signs yet of a change to the decades long trend of rising inequality. As the rich get richer, the richest will spend more of their money on their homes, driving up prices in the most desirable neighborhoods.

Urban planning and legislation suppresses the supply of housing. Places like the Bay Area have restrictive development and zoning policies, and perverse tax incentives, which restrict supply. That inflates prices to the benefit of existing homeowners, reducing turnover.

Geography limits expansion. San Francisco is surrounded by water on three sides. There’s no room to expand, unlike in some cities surrounded by developable land.

Finally, the technology revolution inaugurated by the Silicon Age is not slowing down. The Bay Area remains the center of high tech investment, and as long as computing continues to transform more areas of life, more tech billionaires and multi-millionaires will bid up the prices.

Implications
If it were only Silicon Valley, the rest of the world could shrug and say, Who cares? But the patterns of rising prices can be found in many urban centers throughout the US and the world, regardless of the dominant industry. Where the local economy is vibrant, housing prices are rising in many inner city and inner suburban neighborhoods.

Multiple of the trends favoring rising prices can be found in other urban areas with a solid economy. The geographic constraints can be found in most coastal cities or cities bordered by lakes or mountains. Affluent and liberal areas everywhere tend to pass laws to restrict development. Only the technology trend distinguishes Silicon Valley, and even then, several other urban areas have a growing base of high tech jobs.

I’m not very satisfied with what I’ve read about the revitalization of cities, gentrification, and housing trends generally. I do recommend reading The Great Inversion for part of the story.…

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A Modest Proposal for Silicon Valley Housing

A modest proposal to fix the Bay Area housing crunch: Fill in the southern part of San Francisco Bay with landfill and build a 21st-century city of earthquake resistant glass.

All of the land from the Dumbarton Bridge south could be converted from salt marshes and foul-smelling sludge to a glorious city of the future. That could solve the housing shortage and bring prices back to earth, simultaneously allowing Silicon Valley to expand and grow still more.

It’s no secret that Silicon Valley has the highest real estate prices in the US. The reasons are many, including high salaries, pleasant climate, beautiful geography, jobs — and a dire lack of houses.

Yes, Silicon Valley real estate prices are the highest in the nation for many reasons. And all of them could go away if governments just let developers build enough more, and limited the ability to existing property owners to block what other people can do on their own land.

Local communities exercise near veto rights over development near them, and city planners and developers find it difficult to win many small battles over tiny plots of land. Broad expanses of land abound in the ridge of hills and mountains between the bay and the ocean. But those are widely considered beautiful, and it’s near inconceivable that such stunning parkland will be developed anytime soon.

Meanwhile, the southern part of the bay is not generally considered beautiful. It’s filled with famously smelly salt marshes that serve the only modest ecological value. Their benefits could readily be offset with eco-friendly preservation somewhere else.

Even better, the water comes within walking distance of Facebook, Google, Yahoo, Cisco, and Tesla. It’s a prime location, much more so than San Francisco, so many miles further north, away from the high tech center of the Bay Area.

A new city, literally in the bay, would provide expansion area and take pressure off of housing prices. Better yet, an inchoate city would allow the vaunted technology visionaries of Silicon Valley to experiment in urban design, engineering the public transit, housing, and earthquake resistance of the future, supporting their own high tech economy and showing an example for the world.

And no human infants need be eaten or sold.

Why not? Please share your reasons.…

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