Can Silicon Valley build its way out of a housing crisis?

As demand for affordable housing accelerates in Silicon Valley, some advocates argue that dense new residential units are the way to go. However, building new housing comes with several potential political complications.

As demand for affordable housing accelerates in Silicon Valley, some advocates argue that dense new residential units are the way to go. However, building new housing comes with several potential political complications.

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Despite all the politics surrounding the issue of unaffordable housing in Silicon Valley, there’s one thing pretty much everyone agrees on: The root of the problem is a lack of places to live.

Just shy of 8,000 new housing units were approved in Silicon Valley last year, including large luxury projects. But that number pales in comparison to the 33,000 people that moved to the region last year, according to a new Silicon Valley Index report.

“We’re not even close to keeping up,” said Joint Venture Silicon Valley CEO Russell Hancock.

Affordable housing production in particularplummeted to a 15-year low recently. How much that housing stock can rebound has been clouded by a maelstrom of funding cuts, fallout from the foreclosure crisis and a a tech boom that has spurred dual demand for luxury and lower-priced housing.

To counteract the housing supply crunch — and hopefully improve affordability — market-rate residential developers, affordable housing developers, advocacy groups and Silicon Valley employers are looking toward dense, transit-oriented housing.

The catch: This approach, too, has potential political pitfalls, as development-phobic cities can put up red tape or electoral hurdles to building. – (development phobia and red tape are separate issues – Red tape with CEQA, wage scuffles apply to all area cities.) Beyond those obstacles, area cities have yet to define local implementation strategies for new housing plans like Plan Bay Area. Developers are also wary of new government fees and missing out on chances to develop larger, single-family homes in Silicon Valley suburbs.

A failure by politicians, developers and employers to follow a comprehensive plan for bolstering Silicon Valley’s housing supply has negative implications. Frustrated locals will continue paying more for less housing and sitting in traffic. Outside talent may balk at taking a job here for fear of putting themselves in the same plight.

“I get emails every day saying, ‘This brilliant person is moving to the South Bay. Do you know where they can find reasonably-priced housing?'” said Housing Trust Silicon ValleyCEO Kevin Zwick.. “No, I do not.”

The Density Debate

A mismatch between housing supply and demand has nagged Silicon Valley for decades, pushing up prices and landing the region on innumerable lists of the country’s most expensive places to live.

But in the last few years, a tech boom has compounded the demand for new housing at all income levels, resulting in both lower-earning residents and well-paid area professionals vying for housing in an overcrowded market. In 2013 alone, rents in the San Jose metro area shot up more than 10 percent to an average $2,153.

Economist Stephen Levy, director of the Center for the Continuing Study of the California Economy, said policies that provide for dense housing are “the only way” for housing supply to keep up with demand.

He said the challenge is conveying long-term implications of a housing shortage to residents and public officials in a city like Palo Alto, which has historically opposed dense multifamily housing due to concerns about crowds and traffic.

Levy explained that workers like teachers could be totally priced out. Major employers could also be alienated by poor planning, and then opt to expand elsewhere.

“Seeing those problems as connected is the breakthrough,” Levy said.

But developers question whether the region’s housing market really lends itself to increasing density, especially when there is more available land in less expensive fringe cities.

SummerHill Homes CEO Robert Freed gives the example of a consumer with $900,000 to spend on housing. In expensive markets like Cupertino, Menlo Park or Palo Alto, those funds could possibly buy a townhouse. In Morgan Hill or Gilroy, that money could buy a 3,000 square-foot house, he said.

“Some of these housing policies, which are created by planners — not created by developers — they don’t reflect what the consumer demands,” Freed said. “Any well-planned jurisdiction needs a range of housing.”

Matt Franklin, president of affordable housing developer MidPen Housing, favors density in targeted areas.

“Every community in Silicon Valley has really important transit spines that are often consistent with where their commercial hubs are,” he said. “If you want to preserve the much lower density in other parts of the community, the key is to take advantage of the places where it is appropriate.”

Several area cities are experimenting with new plans calling for relatively dense residential development, such as San Jose, Mountain View and Redwood City.

Linking Jobs and Housing

It may seem counter intuitive, but good jobs are actually a driving force of Silicon Valley’s housing crunch. Cities on the Peninsula in particular have more jobs than housing units — the ratio is about 3-to-1 in Palo Alto, according to Business Journal research — meaning that many residents commute from other cities to work.

Urban planning groups such as SPUR have been vocal advocates of “smart growth” proposals like Plan Bay Area and San Jose’s Envision 2040 plan that link housing with public transit and jobs. However, SPUR and others have also pointed out that many of the proposals are non-binding, meaning that concrete action on smart growth still comes down to developers and city planners.

Franklin said much of MidPen’s funding for new development is tied to building housing near jobs, transit and local services, which has even resulted in experimentation with mixed-use affordable residential and commercial developments.

“The biggest problem we have is we’re not doing enough of it,” Franklin said. “There aren’t enough financial resources.”

(Read more about funding for affordable housing right here.)

Freed said it does makes sense to prioritize rental affordable housing, particularly in areas where there is high demand.

“The goal should be to provide safe and clean, quality rental housing,” he told me. “The programs that are put in place to promote housing ownership I think are misguided and inappropriate.”

Freed, who also serves on the board of San Francisco affordable housing developer Bridge Housing, said affordable housing programs focused on single family homes are costly for developers and inefficient for meeting demand. He gives the example of a Menlo Park development where market rate homes sold for $1.5 million and two identical homes designated as affordable went for a deeply discounted $350,000.

“That helps two families,” he said. “How ridiculous is that?”

Building Blockages

On top of the difficulty inherent in settling on a regional plan for building diverse new housing options, there are several logistical uncertainties currently underlying Silicon Valley’s residential building process.

First, there are proposals for new housing impact fees, where developers would have to pay a per-square-foot assessment on market rate housing units to fund affordable housing. Read more about that debate going on in San Jose, Sunnyvale and East Palo Alto right here.

Then there is the statewide California Environmental Quality Act, or CEQA, which was (unsuccessfully) used in San Jose recently to challenge a new downtown luxury apartment building. The Silicon Valley Leadership Group and the local building community have been longtime advocates of CEQA reform, but labor groups maintain that the law is important for the residential development process.

“A lot of the (residential) developers — not all of them, probably most of them — are low-road operators,” said Ben Field, executive officer of the South Bay AFL-CIO Labor Council. “The quality of the work isn’t good. The quality of the jobs isn’t good. There are a limited number of tools that are available to the community to address those problems. CEQA is one of those tools.”

Field said he is unaware of a local CEQA challenge to an affordable housing development, and added that all sides must be “very, very careful about ever misusing CEQA.”

Beyond CEQA, Fields’s Labor Council recently spearheaded an initiative in Mountain View to raise wages for the workers building affordable housing units. Housing advocates argued that new wage requirements, on top of their already severely reduced budgets, could hinder new development.

“They want to build as much affordable housing as they can, but our position is that you’re giving with one hand what you’re taking away with the other,” Field said. “You’re creating income inequality. You’re creating a greater demand for affordable housing.”

Instead of the statewide minimum wage, Mountain View in October 2013 approved the measure to require prevailing wages — or a city’s average wage — on affordable housing projects involving city funds.

In the meantime, advocates worry that a lack of short-term opportunities to bolster the region’s housing supply will compromise long-term economic growth in Silicon Valley.

“In terms of building affordable housing, it’s never been more difficult,” said Kate Comfort-Harr, executive director of San Mateo housing services nonprofit HIP Housing. “We’re going to hit a wall. I don’t know that anybody else has ever experienced that.”

This is part of a larger content package on Silicon Valley’s affordable housing crisis. Read“The Shadow of Success” here and the director’s cut version here.


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