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.


For Foreign-Born Entrepreneurs, Silicon Valley Is the American Dream

This is a good article that uses data from the Silicon Valley Competitiveness and Innovation Project to explain the impact of foreign-born entrepreneurs to the innovation economy and Silicon Valley. It also looks at the ecosystem, including from a women’s perspective – why they come here. The article was posted on the website 7X7 – A San Francisco Bay Area’s online resource for the best local food, drink, culture, arts, style, outdoor adventures, tech, travel and more. – Steve Wright swright@svlg.org

By Joseph Jaafari on June 04, 2015 3:00 PM

In the maze of offices at Rackspace on Folsom Street, Shahin Shadfar points to a small row of disheveled chairs and overturned computer mice lined up against a grey wall of cubicle space: This is where his team sits. Shadfar walks into a lounge to talk about an app called Zurf, his latest venture, which comes on the heels of several successes in other tech projects across the nation. But while Shadfar has begun to build a name for himself in San Francisco, Houston, and Boston, he’s not from the United States. In fact, he is a member of a vibrant Persian entrepreneurial community, which, like many other immigrant communities, is growing in Silicon Valley.

Techies have moved into Silicon Valley from around the globe in droves, making tech one of the most internationally diverse industries around. Foreign-born workers occupy over half of the Valley’s STEM jobs, and foreign talent, according to the Silicon Valley Competitiveness and Innovation Project (SVCIP), runs about 49 percent of all tech startups.

Trisha Roy is another one of these workers—an Indian born woman who is now living the Silicon Valley dream. Having grown up with zero exposure to technology to build a product, she considers herself lucky.

“Technology outsourcing from big companies [to Indian engineers] wasn’t really translating into women really taking on technology,” she says, adding that she never gave any thought to a job in tech because outside of things like phones and computers, there weren’t many high-level technologies readily available to her back home.

“Even if you don’t have an engineering background, being [in the U.S.] and talking to people here, technology touches your life. That wasn’t the case in India,” she says. “Technology only touched the lives of engineers.”

After moving to the states to get an MBA from the University of Arizona, Roy wanted to work in the Bay Area. The best paying jobs were in tech, so she taught herself the basics of coding to be competitive and was successul in landing a job at eBay, working her way up to becoming a senior product manager. Today, she owns Barn & Willow, a company that leverages technology to create custom home decor.

Roy’s drive to succeed is characteristic of many foreign intellectuals who’ve come to work here, and now companies are capitalizing on it by bringing new talent stateside.

PuenteLabs, a SF-based startup that works with Latin American companies seeking to expand into Silicon Valley, says the initial challenges for immigrant entrepreneurs are obvious ones—think cultural and language barriers.

“If you look at Chileans as a group, they are pretty humble,” says Mike Hennessey, executive director for PuenteLabs. “They don’t want to brag about their ambitions, so I’ve seen situations where Chileans come here to raise money and they don’t mention that some of their investors are the top people in the Valley. I think Silicon Valley is a meritocracy to a degree, so if you can get the meetings, and your ideas are valid, where you’re from is irrelevant. But, to the aspect of being able to communicate that clearly, I think language does play a big part.”

There are bureaucratic issues, too: Strict and heavily criticized immigration policies in the U.S. often prevent foreign-born tech workers from continuing to work here, according to another report published by the SVCIP: “While the region’s universities, companies, and startup culture are magnets for foreign talent, each year thousands of tech workers and other professionals return home because of immigration restrictions and delays,” it says.

Roy experienced this firsthand: When many tech companies wouldn’t take the chance to sponsor her visa, she faced the prospect of deportation had she not found a job. But it’s a risk she would gladly take again for the chance to build her own company in Silicon Valley.


California must invest now in education and infrastructure

By Lenny Mendonca and Doug Henton

(This article first appeared on May 14 in the San Francisco Chronicle.)

This spring, the governor and the Legislature have an opportunity to innovate a different future. Rather than building a new spending base that cannot be sustained, the state needs to invest its unexpected revenue like venture capital — it needs to invest in education and infrastructure projects that can catalyze job creation and reduce poverty. Now is the time to invest in our economic future and ensure the innovation that got us here continues through the next downturn.

To build the sturdy foundation that California requires for a lasting prosperity, we must think about where California needs to invest and how to pay for it. California’s long-term prosperity depends on investments in human capital and infrastructure, as California Forward wrote in its recent “Financing the Future” report.

The governor’s revised state budget, presented Thursday in Sacramento, increases spending for public schools, higher education and tax relief for the working poor. The governor also agreed to work with the Legislature on infrastructure investments. It may slow our state’s economic recovery unless we address deep structural issues, including:

  • Housing affordability — California is short 750,000 housing units, and rent is too high.
  • Infrastructure — An estimated $853 billion investment is needed in transportation, water and K-12 school facilities in the next decade.
  • Research and development spending — As a share of the federal government’s budget, this year’s outlays for R&D will be the lowest since 1968. The Silicon Valley Competitiveness and Innovation Project revealed the startling reality of slower growth in R&D funding in Silicon Valley compared with other regions. In 2013, Silicon Valley universities’ R&D levels actually fell below those of 2004 on an inflation-adjusted basis.

How do we address these concerns? We need:

Leadership by the public and private sectors, including elected officials, university presidents and industry representatives, to commit to our long-term economic future.

Sustained public investment, which will help attract private investment, as well as support from foundations and the federal government.

Sustained support for educational institutions, including research facilities, which will produce a trained workforce and a flow of ideas for commercial development.

Public-private partnerships to develop the necessary workforce, improve and expand infrastructure, and support bringing the resulting products to the market.

The work is under way. Enhanced Infrastructure Financing Districts and increased career technical funding are two “wins” the California Economic Summit already has achieved since it began its work four years ago. The Community College Chancellor’s Office has been traveling around the state to explore how the state’s vast community college system can better develop and import programs to train the 1 million middle-skills workers California needs. The California Council of Science and Technology plans to launch a California Innovation Initiative driven by public and private leaders that will promote investments in our future.

And more can be done.

Let’s let the governor and the Legislature know we can’t miss this opportunity to invest in our future.

Lenny Mendonca is co-chair of California Forward and chair emeritus of the McKinsey Global Institute. Doug Henton is chairman and CEO of Collaborative Economics, a San Mateo-based economic consultancy that worked on the Silicon Valley Competitiveness and Innovation Project for the Silicon Valley Leadership Group and the Silicon Valley Community Foundation.


Silicon Valley Universities – Critical Need to Strengthen R&D Funding

By Doug Henton & Janine Kaiser, Collaborative Economics

Research and development (R&D) is essential to the innovation pipeline in Silicon Valley and its universities have been losing ground to other U.S. regions, new Silicon Valley Competitiveness and Innovation Project data shows.

In addition, the U.S. is lagging other nations on R&D spending, with lower R&D expenditure as a share of GDP and slower growth than China, South Korea and Germany, as well as other nations.[i],[ii]

The slower growth in R&D funding in Silicon Valley compared to other regions is troubling.

In Silicon Valley, the region’s universities have seen total R&D expenditures expand by 12 percent over the past decade.[iii] Contrast that to China, in which total R&D spending expanded by 17.6 percent on average per year between 2002 and 2012.[iv] While Silicon Valley universities’ R&D expenditure levels are still among the highest in the United States ($2.8 Billion in 2013), growth in spending also lagged other key innovation regions over the decade, including New York City, Boston and Seattle.

This trend is especially pronounced for R&D supported by federal grants in Silicon Valley, which accounted for 55 percent of total university R&D expenditures in 2013. While American Recovery and Reinvestment Act expenditures drove an expansion of academic R&D funding across U.S. institutions between 2009 and 2012,[v] in 2013, Silicon Valley universities’ R&D levels actually fell below those of 2004 on an inflation adjusted basis, and lagged compared to other key innovation regions.[vi]

Because R&D activities and funding are critical for the long-term health of Silicon Valley’s innovation ecosystem, the SVCIP identified the following essential public policies to promote continued growth in R&D

  • Develop R&D funding matching program for areas such as biotechnology, clean energy and DARPA.
  • Implement permanent R&D (and R&D equipment) tax credits.
  • Emphasize return on investment in funding formula, tax credits.
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[i]Hourihan, Matt. “Federal R&D Budget Trends: A Short Summary.” American Association for the Advancement of Science . January 2015. http://www.aaas.org/sites/default/files/R%26D%20Budget%20Overview.pdf

[ii] “Mercury News editorial: U.S. needs to increase R&D spending or cede world economic leadership.” San Jose Mercury News. March 18, 2015.

http://www.mercurynews.com/opinion/ci_27736399/mercury-news-editorial-u-s-needs-increase-r?source=infinite

[iii] National Science Foundation. “Higher education R&D expenditures, ranked by FY 2013 R&D expenditures: FYs 2004–13”. Higher Education Research and Development (HERD) Survey Results. February 2015.

[iv] Hourihan, 2015

[v]National Science Foundation. “Expenditures and Funding for Academic R&D.” Science and Engineering Indicators 2014. http://www.nsf.gov/statistics/seind14/index.cfm/chapter-5/c5s1.htm

[vi] National Science Foundation. “Federally financed higher education R&D expenditures, ranked by FY 2013 federal R&D expenditures: FYs 2004–13”. Higher Education Research and Development (HERD) Survey Results. February 2015.


The “Fifth Wave” of the Silicon Valley

SVCIP_2015_cover

By Michael S. Malone

The release of the new Silicon Valley Competitiveness and Innovation Project report by the Silicon Valley Leadership Group and Silicon Valley Community Foundation presents the perfect moment to look at this remarkable region, our home, from a new and fresh perspective.  It is time to ask ourselves where the Valley – from San Francisco to San Jose to Oakland and beyond – goes from here.

I’d like to begin with some good news.  I don’t have to tell you that over the last few years, despite a stagnant national economy, Silicon Valley has had an amazing run – one of the greatest in its history.  I assumed, as I suspect many of you did as well, that the nation’s other tech centers were enjoying a similar success – that, indeed, they might be gaining ground on the Valley.

But, the new report tells a very different story.  Amazingly, what the researchers – Collaborative Economics – has found is that our region, already dominant in the world of high tech, has begun to pull away from most of our regional counterparts.

Continue reading…