Less than 25 percent of individual workers and only 40 percent of households in Silicon Valley can afford average-priced housing

By Janine Kaiser and Doug Henton, Collaborative Economics

Housing costs in Silicon Valley remain among the highest in the United States, according to new data compiled for the Silicon Valley Competitiveness and Innovation Project, and represent a critical competitiveness and equity concern for the region. Not only does housing affordability affect the ability of workers to live within the region, it also impacts companies’ ability to attract top talent, and the economy’s ability to attain its full potential.(1) Recent research also suggests that housing affordability has long-term consequences because owning a home is a critical factor in intergenerational wealth and income disparity.(2)

The median home value in the San Jose Metro Area is nearly $925,000, the highest median value in the United States.(3) Purchasing a home of this value requires a minimum salary of at least $133,000 per year.(4) Rental market prices have also increased rapidly, and in May 2015, average monthly rent in San Jose was $2,917 for a two bedroom apartment.(5) To afford this rent level, residents would need to make $116,680 annually.(6)

Yet in the most recent data available, median income for individual workers in the San Jose Metro Area was $57,400 in 2014,(7) and among households, $91,500 in 2013.(8) To rent an average two-bedroom apartment in Silicon Valley, an individual worker would need to earn more than the 75th income percentile in the region ($105,000), and households would need to earn more than the 60th income percentile ($114,300). The takeaway is that less than 25 percent of individual workers and only 40 percent of households in San Jose, at the center of Silicon Valley, are able to afford to rent average-priced homes in the region. Purchasing a home is equally challenging for residents in the region. Only 44 percent of Santa Clara County’s households could afford to purchase an “entry level” home in the first quarter of 2015, and an even smaller share of households could afford entry level homes in San Mateo and San Francisco counties, 29 percent and 27 percent, respectively.(9)

Even high-technology STEM workers are feeling the pinch. The median salary for workers in Computer and Mathematical occupations, for example, was $121,000 in 2014. While these workers can afford to rent in the region, less than half of the workforce would be able to buy an average home.

Compounding the affordability challenge for residents is the rate of change; income levels in Silicon Valley (proxied by the San Jose Metro Area) have not kept pace with the increase in housing prices. Between the recent housing market bottom in the region in January 2012, and May 2015, median home sale prices per square foot rose 67 percent.(10) Median rental market prices increased 47 percent over the same period. Median income, on the other hand, rose 4 percent between 2012 and 2014.

Leaders from the private, public, and community-based sectors are rallying to improve housing affordability and access in Silicon Valley. In January 2015, leaders identified the following housing priorities for action in the Silicon Valley Competitiveness and Innovation Project:

  • Mobilize business voices in support of additional housing development in the region. Businesses can play a key role in testifying about the importance of additional housing development during the local government review processes for new construction.
  • Advocate for a permanent funding source for affordable housing at the state level.
  • Invest in transportation infrastructure and housing across cities within the region to promote livable cities, aligning with regional planning efforts such as Plan Bay Area developed by MTC in 2013 as required by SB375.

Progress is occurring on all of these fronts. Longtime Silicon Valley watchers know that housing and housing affordability are cyclical in Silicon Valley, just like the innovation economy. The Silicon Valley Leadership Group has a long record of tackling the issue. Its work on housing includes:

  • Raised $20 million to form the Housing Trust of Silicon Valley in 1998 which has helped more than 11,750 people through its three programs (first-time homebuyer, homelessness prevention and rental housing).
  • More than 20 years ago, helped form the Housing Action Coalition of Santa Clara County to advocate for housing developments and policies across the region. Direct support for 237 projects totaling approximately 67,000 homes.
  • In 2014, led a coalition to adopt a $17 sq/ft housing impact fee in the City of San Jose which will result in $30 million annually for affordable housing.

Another new and important voice complementing the Leadership Group’s efforts on housing policy is the newly launched SV@Home. SV@Home advocates for “policies, programs, land use decisions, and funding sources to increase housing for all members of the Silicon Valley community,” with support from community-based organizations, public leaders, developers and technology companies.(11)

Grassroots efforts, such Palo Alto Forward, are underway and are mobilizing citizens to help craft innovative solutions to the housing challenge.(12)

While progress is being made, the challenge is grave, with both short and long term impacts.

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SVCIP was developed jointly by the Silicon Valley Leadership Group and Silicon Valley Community Foundation to proactively benchmark 23 innovation economy indicators and develop overarching public policy strategies at local, state and federal levels to enhance and reinforce the Valley’s competitive advantages in innovation. Collaborative Economics has conducted the data research and analysis for this project. Follow SVCIP for progress and data updates by subscribing here.

1) Taylor, Mac.  California’s High Housing Costs: Causes and Consequences.  Legislative Analyst’s Office. Mar. 17, 2015

2) Rognlie, Matthew, “Deciphering the fall and rise in the net capital share.” Brookings Papers on Economic Activity.  March 17, 2015. http://www.brookings.edu/about/projects/bpea/papers/2015/land-prices-evolution-capitals-share

3) Bloomberg Millenial Housing Affordability Index. http://www.bloomberg.com/graphics/2015-millennial-affordability/table.html

4) Ibid

5) Rent Jungle. https://www.rentjungle.com/average-rent-in-san-jose-rent-trends/

6) Gross annual income estimate calculated based on rent as 40% of income, and a 25% tax bracket.

7) Bureau of Labor Statistics, Occupation Employment Statistics, May 2014.

8) U.S. Census Bureau. American Community Survey, 2013.

9) California Association of Realtors, http://www.car.org/marketdata/data/ftbhai/. “Entry level” home refer 85% of median sale price in the region.

10) Zillow, Median Home Sale Prices per Square Foot

11) http://siliconvalleyathome.org/about-us/

12) http://www.paloaltoforward.com/


Ideas for fixing the big pothole that is California’s roads

One of the challenges for an innovation region with signifcant job growth is the impact on commutes, roads and public transit. Silicon Valley Leadership Group CEO Carl Guardino, who also is a member of the California Transportation Commission, discusses below the problem and potential funding solutions the state is reviewing now to fix roads and highways. You can find out about the public meetings, give input or volunteer to help by going to www.dot.ca.gov/road_charge/.

This first appeared as an op-ed in the San Francisco Chronicle on July 6, 2015.
By Carl Guardino
July 6, 2015
Depressed. Distressed. Determined.
When it comes to solutions to California’s crumbling highway, street and road conditions, it’s easy to feel discouraged about any possible path forward. Fortunately, Gov. Jerry Brown has challenged the Legislature to seek bipartisan solutions to fill the deep hole — make that a big pothole — in what passes for roads and highways in the Golden State.
Special-session public hearings started Thursday, but the real fireworks will start this week when the Legislature returns after the long holiday weekend. How tough is the challenge? Get ready to be depressed:
• We have a $59 billion hole just in deferred maintenance in our state highway system.
• California road conditions rank 45th of 50 states, according to the state Transportation Commission.
• California’s 10-year unfunded transportation needs exceed $296 billion.
When we consider solutions using traditional approaches, we move from being depressed to distressed:
• The gas tax, California’s transportation funding source since 1923, now has the lowest purchasing power, when adjusted for inflation, in history.
• With more Californians driving fuel-efficient cars, we have even fewer gas tax funds to fix our roads.
Fortunately, the governor and the Legislature seem determined to find commonsense solutions to solve these challenges. In the near term, these solutions could include:
• Restoring California’s truck-weight fee to its intended purpose — funding repairs on our highway system caused by heavy-duty trucks. The $1 billion annually raised from these fees is diverted to the general fund. Assembly Democrat Luis Alejo of Salinas and Assembly Republican Eric Linder of Corona (Riverside County) have legislation to ensure the full $1 billion is used as intended.
• State Sen. Jim Beall, D-San Jose, has introduced SB16, which would fund roughly $40 billion in state highway and local road improvements over the next decade.
•• Assemblyman Henry Perea, D-Fresno, has introduced AB1265, which would extend the ability of Caltrans to enter into public-private partnerships, saving time and money on transportation improvements.
• The Silicon Valley Leadership Group is poised to lead or support countywide transportation measures in 2016 in at least three counties: Santa Clara, Santa Cruz and San Francisco. The leadership group co-led the first “self-help” county campaign in 1984, with voters approving a half-cent sales tax in Santa Clara County for specific transportation improvements. The approach has been emulated by 20 counties, and those measures fund 50 cents of every $1 invested in transportation statewide.
San Jose Mayor Sam Liccardo jokes that we could repurpose potholes as “traffic calming devices,” but we all know that crumbling streets are no laughing matter. California has a golden opportunity to turn the corner on the quality of our highways, streets and roads with more adequate, sustainable funding.
The state’s Road Charge Technical Advisory Committee, a 15-member group established by the state Transportation Commission and California State Transportation Agency, is soliciting feedback. You can find out about the public meetings, give input or volunteer to help by going to www.dot.ca.gov/road_charge/.
Carl Guardino is president and CEO of the Silicon Valley Leadership Group. He also is a member of the California Transportation Commission.