Technical difficulties: Bay Area housing crunch squeezes cities | Crain's Silicon Valley

Technical difficulties: Bay Area housing crunch squeezes cities

Oakland's skyline, with San Francisco's across the Bay, as seen from Joaquin Miller Park, Oakland. | Photo by Jesse Richmond

The Bay Area measures success in many different ways. Although funding in the area peaked a few years ago, the region still has more venture capital available — $7 billion — than any other in the world. And techies and serial entrepreneurs from around the globe still flock to the area— and to its ever-shrinking housing market. 

Home to some of the most innovative technology companies and ideas in the country, the Bay Area also has some of the nation’s most expensive housing. Online real-estate database Zillow reports that the average two-bedroom home in Mountain View — the heart of Silicon Valley and home to Google — costs $1 million, compared with a median of $157,000 nationwide.

Partly as a result of the affordability crisis in the Silicon Valley and neighboring cities, competing startup districts across the country have begun to gain traction. But the steady flow of workers pouring into the Bay Area has caused an unrelenting surge in the cost of living. 

Housing crunch spans the region

Lack of affordable area housing is a problem that affects everyone — from entrepreneurs to tech transplants to longtime residents, says Cupertino City Manager David Brandt.

“We in Cupertino certainly are experiencing a housing-affordability crisis, but the tech companies are not leaving," Brandt said of the city that houses Apple’s global headquarters. "In fact, they seem to be expanding at a pretty rapid pace. I am actually pretty surprised because the salary pressures are getting pretty substantial, and these companies could probably find employees at a lower cost in other states."

Every city in the area is experiencing some level of the same crisis. Not enough housing options exist for everyone who wants to live in Silicon Valley and the surrounding region, which drives up rent prices and fosters outrageous bidding wars for homes that subsequently sell for far above their true value.

Says Tom Tognoli, CEO and President of Cupertino-based Intero Real Estate, "There haven’t been any signs of any slowdown from a real-estate standpoint really at all over the past several years."

Tognoli breaks the issue down further.

"There’s a finite amount of housing because we’re somewhat landlocked,” he says. “The Bay Area proper is a big peninsula. And it’s pretty much completely developed, so [housing construction is] really only in-fill, where they’re tearing down old properties and building new ones. It’s not like other parts of the country [where] they can keep adding housing because there’s more [available] land," he said.

Even Oakland, traditionally known as a more affordable location, is seeing prices tick up, according to Marisa Raya, head of special projects for the city of Oakland’s Economic and Workforce Development department.

“We’re in the Bay Area, and we’re still affordable compared to San Francisco and Palo Alto,” Raya says, “but [since 2012] we have had the fastest rent growth of almost any city in the country.”

Raya continues, “The spike we saw in housing prices came after a long period where we didn’t have any new housing construction. And now we have over 2,000 units under construction. So we’re hoping that even though building might not go down, it will level off."

At the other end of the Bay — and the affordability spectrum — from Oakland is Palo Alto, one of the wealthiest cities in the United States. Judy Kleinberg, president and CEO of the Palo Alto Chamber of Commerce and a former mayor of Palo Alto, put less emphasis on the housing shortage and more on the tension the problem has caused among residents.

“We are overrun with millennials. In fact, I think some of the regular residents of Palo Alto sometimes feel like it’s not their city [anymore] because there’s so many of these young employees roaming the streets,” Kleinberg said.

The housing crunch has become so severe that it has divided the city into factions: one that opposes affordable housing and another that supports it, she said. The Palo Alto economy is strong enough that the faction opposing affordable housing suggests eliminating jobs to shrink the population and bring affordability back to current residents. A few companies leaving the city along with their employees, their theory goes, would help alleviate the housing crisis more than it would hurt the economy.

“Some of the leaders in our [municipal] government say they want only startups here, and if [companies] get too big, they should leave,” Kleinberg said. “In some ways, I agree with that. There is a certain growth-limit to businesses here.”

Communities struggle to find solutions

Even as startup districts develop around the country, it’s clear that Bay Area cities still have a host of problems to face when it comes to housing. Local governments are one factor in the solution.

Oakland's 2016 Housing Cabinet report outlines the city's current efforts to maintain affordability, including building new homes. According to the city’s Marisa Raya, the average apartment in Oakland renting for $1,800 a month five years ago would go for nearly double that amount today.

Raya said the city’s housing action plan has a goal of 7,500 new units coming online in the next five years. The city also already has a form of rent control, which it’s trying to expand to another 7,000 units.

“Oakland-based startups are going to serve the needs of Oaklanders,” Raya said. “So we’re still trying to support our ecosystem around people building companies more focused on serving the average Oaklander, who is not a six-figure-salary earner.”

Judy Kleinberg of the Palo Alto Chamber of Commerce said her city is looking to build more apartments and condos as transit-oriented developments, an idea she supports.

“We’re not going to be the Chicago of the future,” she said. “We are still an urbanized suburb.”

California-based private companies sense an opening here and offer varying solutions. Mountain View–based Zapier, a startup that helps connect apps to build workflows, lets all of its employees work remotely. It offers $10,000 "de-location" packages to employees who want to move out of the Bay Area within the first three months of hire — as long as those employees promise to remain with the company for a year.

Cover, based in Gardena, is tackling the crisis hands-on with custom guest houses. The company manufactures prefabricated living spaces that fit in the backyards of other homes. Cover's touts its constructions, which can be planned and assembled in weeks and start at $90,000, as ideal both for housing aging family members and for renting out to strangers in expensive cities.

It seems that the Bay Area still beckons, and it will likely take much more than expensive real estate to make a significant dent in its tech crown.

"You can put people in an office anywhere, but there still is something very special about our community,” Kleinberg said. “There’s an ecosystem here that you can’t manufacture easily somewhere else.”

July 23, 2017 - 7:05pm