San Francisco is famous the world over for its trolley cars, the winding Embarcadero, sea lions on the piers and the Golden Gate Bridge. Tourists come from all over to take in these sights. They also come to learn more about the history of the gold rush or see historical landmarks like Alcatraz. And of course, the Bay Area has been famous in recent decades for the tech boom that exploded and gave us Apple, Google, Uber and more.
But increasingly, San Francisco and the rest of the Bay Area are also infamous for their outrageously high housing costs. The median home price in San Francisco in 2018 was a whopping $1.6 million — the highest in the nation, or second only to Manhattan’s prices, depending on which sources you consult. By contrast, the median home price in the United States in 2018 ranged from about $310,000 to $335,000, depending on the month.
In fact, you could buy an entire island off the coast of Ireland for that same price. A pastoral, 80-acre island just off the coast of Galway, with lush green grasses, two lakes, many historical artifacts and an abundance of bird species to watch, is selling for about US $1.4 million!
Or if Ireland doesn’t strike your fancy, there’s always the US state of Georgia. The town of Toomsboro there, including 37 pieces of property on 40 acres, is up for sale for $1.7 million. Who needs a million-dollar East or West Bay home when you can roam the local attractions of an abandoned restaurant, a railroad depot, an old bank, an opera house and a syrup mill to your heart’s content?
But for the people who live and work in the Bay Area — not all of them in the tech industry — and need affordable places to live, the sky-high housing prices represent both a present conundrum and a growing concern for the future.
Table of Contents
- What Caused the Bay Area Housing Crisis?
- How Is the Bay Area Housing Crisis Impacting Residents?
- How Does the Housing Crisis in the Bay Area Impact Businesses in California?
- What Is Being Done to Correct the Bay Area Housing Crisis?
- How Are Tech Companies Responding to the Bay Area Housing Crisis?
What Caused the Bay Area Housing Crisis?
How do housing crises happen? And why is it so hard to find affordable housing in the Bay Area? The Bay Area housing crisis can be attributed to a combination of a few different factors.
1. An Influx of Workers That Outstrips Construction Rates
A large part of the issue in the Bay Area housing crisis stems from too great an influx of workers for the existing housing market and home construction rates to accommodate. In the Bay Area, the construction of new homes lags far behind the proliferation of new jobs. Since 2009, California has added 722,000 jobs to the state’s economy but built only 106,000 homes. In fact, California ranks 49th out of the 50 states in per capita housing units. This disparity creates an unrelenting demand for homes that drives both housing prices and rental costs skyward.
2. Zoning Laws
Adding to the issue are zoning laws. San Francisco and the rest of Silicon Valley have stringent zoning laws designed to limit crowding. Some proponents of these laws argue that limiting population density is a benefit — it allows for a less congested city and keeps it from being overrun with more traffic than it can support.
But others argue these zoning laws are wielded to give established, moneyed residents exclusive access to the most sought-after neighborhoods. The people who end up excluded are often new working-class residents or minorities, leading to a lack of diversity in neighborhood demographics and homeownership.
In any case, the stringent zoning laws in the city lead to a situation where the rate of new arrivals to the area dramatically outstrips the rate of new development, making it extremely hard for anyone but the wealthiest to find places to live.
3. Effects of Proposition 13
Another culprit in the Bay Area housing crisis may be the local tax system. California’s Proposition 13, which was passed in 1978, limits tax increases to no more than 2% on any home until that property changes hands. This effectively fixes property taxes at their initial rate until the house is sold. Practically, this initiative means that developers have long favored commercial developments over residential ones. This is because commercial properties tend to generate revenue in the form of sales tax that is generally much more than 2%.
The result is that Proposition 13 works to limit the number of new homes being built. This limitation led to a dearth of housing that could not sustain the influx of new residents, particularly tech workers, that the city would see a few decades later.
4. Lack of Affordable Housing Development
One possible answer to these conundrums, of course, is affordable housing. But affordable housing, like most construction projects, is expensive to build, and it requires costly subsidies. This has limited local enthusiasm for affordable housing efforts.
In the mid-nineties, the Department of Health and Urban Development signed contracts with nonprofits to subsidize significant numbers of affordable housing units in the Bay Area. Now, however, many of these contracts are expiring, and many nonprofits decline to renew them because, in this hot housing market, selling is much more lucrative.
Developers are also often reluctant to build new affordable housing not only because it is unprofitable but also because they receive complaints from neighboring residents that the new affordable housing units will drive their property values down. For this reason, developers are much more likely to build luxury condos, which only exacerbate the housing crisis.
Additionally, it can be hard for residents to know where to find affordable housing in the Bay Area. Currently, just five lower-income neighborhoods in the eastern part of San Francisco — the Tenderloin, South of Market, Western Addition, Bayview Hunters Point, and the Mission — hold 60% of the city’s affordable housing units.
How Is the Bay Area Housing Crisis Impacting Residents?
The impacts of the Bay Area housing crisis affect residents in a few different ways. Read on to learn how the housing crisis is impacting Bay Area residents.
1. It Puts Homeownership out of Reach
In San Francisco, there are only 15 neighborhoods, out of 102, where the median home price is under a million dollars. But even in the least expensive of these, Lower Nob Hill, the median home price approaches $800,000 — still no bargain.
The rest of the Bay Area is little different from San Francisco. In San Jose, Sunnyvale and Santa Clara, the median home price is $1.27 million. Across the bay from San Francisco, historically more affordable Oakland has seen gentrification push home prices higher as well. In Oakland, 82% of neighborhoods still have median home prices of under a million dollars, but again the $800,000 stickers there are only marginally better.
Across the Bay Area, home prices have increased by a staggering 98% since the bubble burst in the housing market and prices bottomed out in 2009.
And for some people struggling to choose between buying and renting, renting an apartment is just as bad. It’s not uncommon for the monthly rent of a one-bedroom apartment in the Bay Area to exceed $2,000, even outside of San Francisco proper. Rents have increased by 50% over the past decade, and many renters must budget relentlessly to make ends meet.
2. It Pushes Out Non-Technology Employees
It is true that most of the job growth in the past couple of decades has been driven by workers who make more than $100,000 a year. Nevertheless, workers making under $75,000 a year continue to make up the majority of workers in the city of San Francisco. And studies show that 90% of average workers in Silicon Valley have experienced a decline in real wages — that is, their wages after adjustment for increases in the cost of living — over the past decade or two.
Middle-class workers have seen their real wages decrease by as much as 14%. Meanwhile, tech workers have seen their real wages rise by as much as 38% in that period as economic inequality continues to sharpen. As the cost of living, particularly the cost of housing, increases, more and more residents not employed in technology are being left behind.
For non-tech residents like teachers, nurses and police officers, the housing crisis has meant that their salaries can’t keep up with the skyrocketing costs of housing. And even if it’s possible to scrape together $2,000 rent for the next several months — what about ever buying a home, or what if the rent increases, or what if such a large percentage of the monthly paycheck is going toward housing that there’s nothing left over for retirement savings or emergencies?
Kids lose their friends because their friends’ families are priced out of the area and have to relocate. Senior citizens, who often live on small pensions and modest retirement savings, cannot afford to keep up with rising costs. Health concerns may make it difficult for them to hold down a second and third source of income, as some residents do to make ends meet. They may find themselves evicted to make room for tenants who can pay more. The ripple effects through society may seem small, but they can have devastating individual consequences.
The housing crisis is also problematic for people like janitors, shuttle drivers and cafeteria workers who don’t work in tech directly but are part of the motors that keep the big tech campuses running.
As reported by Vox, the janitors who work at Google, for example, make $26 per hour. For full-time employees, that salary comes to about $50,000, which would be extremely comfortable in many areas in the country but not here. In Santa Clara County, where Google’s main campus is located, $50,000 is within the threshold to qualify as “very low income” — and that’s just for one person, never mind for a family with kids.
Tellingly, a recent survey found that 46% of Bay Area residents want to move. That number is up from 2016, when a similar survey showed that 34% of residence planned to leave within the next few years. Respondents cited traffic, housing costs and the generally high cost of living as factors in their decision.
3. It Frustrates Tech Workers
Believe it or not, even tech workers who make six figures a year are struggling. A salary of over $100,000 may sound like a lot to many of us, but in San Francisco, where the average down payment on a home is $250,000, even a sizeable salary doesn’t go far.
One survey found that 70% of technology workers at top companies struggle to find affordable homes in the areas where they work. This survey polled 3,600 workers at 21 top companies in the tech industry, many of them high-level employees such as engineers and data scientists. Though their plush salaries allow them to pay San Francisco’s exorbitant rents, even they cannot afford to buy homes. Tesla’s employees felt the hardest hit, with 76% reporting they could not afford to buy a home. And 61% of workers at Apple reported the same.
One young Google engineer has found the stiff housing market so frustrating that they resorted to sleeping in a truck in the company parking lot. Though a Google engineer’s salary is enough to afford some form of housing in Silicon Valley, it’s hard to justify thousands of dollars a month for an apartment where many midnight-oil-burning employees sometimes go only to sleep.
4. It Leads to a Growing Crisis of Homelessness
Rising levels of homelessness are one of the dire consequences of the housing crisis. One social services agency in Mountain View, home to the Google headquarters, reports that ten years ago, its staff provided services to 4,000 people a year. Now that number has more than doubled, rising to 10,000 people a year as lower-income residents are being priced out of their homes.
Some people imagine the homeless population to be filled with individuals who experience serious mental health conditions or struggle with substance abuse. In the Bay Area, though, even some people with regular professional employment, like teachers, are ending up homeless, living in their cars, because they simply cannot compete in the real estate market.
Strict ordinances against temporary encampments also make it difficult for homeless residents to find safe places to stay. The circumstances for these folks is so dire, in fact, that it prompted one United Nations official to label the housing shortage in the Bay Area, the associated homelessness and the treatment of homeless residents as a human rights violation, akin to the circumstances found in slums around the world, after visiting the area on a fact-finding mission in January of 2018.
How Does the Housing Crisis in the Bay Area Impact Businesses in California?
The housing crisis in the Bay Area affects businesses in a couple of different ways.
1. They Feel Pressured to Increase Salaries
Facebook pays its workers a median salary of $240,000. In fact, Facebook, Google and Netflix all pay higher median salaries than Goldman Sachs does, so Facebook employees may be able to keep afloat amid the ever-higher waves of housing costs. But most companies, even many tech companies, would struggle to do the same. Nevertheless, in a climate where high salaries are required to keep employees competitive in the housing market, many companies feel that they must raise salaries or risk falling behind the tech behemoths who can offer a true living wage for the Silicon Valley cost of living.
2. They Struggle to Attract and Retain Employees
The high cost of housing leads to a situation in which companies are unable to retain their employees because they cannot afford to buy or rent in the stiff housing market. Companies also find it difficult to attract workers in the first place because of the astronomical housing costs those workers would face if they relocated.
3. They Must Move or Outsource
The housing crisis hits tech startups, in particular, quite hard. Many cash-strapped startups resort to outsourcing their programming work to cities where housing is more affordable. As they move through investment series and gain more funding from venture capitalists and other investors, they can gradually start relocating their staff to Silicon Valley. Some established companies that find that they cannot attract or retain workers also end up expanding outside the state or moving entirely.
What Is Being Done to Correct the Bay Area Housing Crisis?
With even tech workers feeling priced out of the Bay Area housing market, and with educators, medical staff and service workers finding slim options for affordable housing, many residents feel that the current housing market is untenable. A growing number of residents feel that fixing the Bay Area housing crisis is necessary to make the area’s homes affordable for more than just the 1%.
There is a glimmer of hope for the Bay Area housing crisis. In 2019, it was reported that home prices in the Bay Area had fallen for the first time in seven years. Consumers who bought new homes or condos in March of 2019 paid .1% less than they would have paid in March of 2018. Though this drop is small, it may at least signal a leveling off in the skyrocketing prices, which up until this March, had increased for a staggering string of 83 months in a row.
1. Building More Affordable Housing
Many people see the answer as simple — just build more housing. But it’s not quite as simple as that. To construct more housing, developers must first procure zoning approval, which can be a tricky process.
For this reason, advocates of affordable housing are pushing for the passage of SB50, a state Senate bill that would allow for the construction of high-density housing units close to major transit centers and locations that are deemed “job-rich areas.”
Jerry Brown, the governor of California, has also recently signed fifteen bills aimed at bringing affordable housing to the Bay Area and the rest of the state.
2. Investing in Modular Building
Experts have said that modular building could reduce the costs of housing in the Bay Area by as much as 20 to 50%. Also known as prefab, modular construction involves constructing parts of homes and apartment in factories, shipping them and then assembling them on site. Modular building projects, when successful, have saved tenants up to $700 in rent.
However, modular building companies have struggled in other areas of the country. This is because the technology is still in its infancy and also because the zoning requirements are tricky to navigate.
3. Plan Bay Area 2040
Plan Bay Area 2040 also shows promise. Plan Bay Area 2040 is a collaborative effort between the Metropolitan Transportation Commission and the Association of Bay Area Governments. It is a roadmap describing housing goals to achieve by the year 2040 and laying out the steps the nine counties of the Bay Area must take to make the goals a reality.
The plan makes recommendations for transportation and land-use strategies to alleviate some of the Bay Area’s housing burden. It proposes long-term funding relationships between government, businesses and NGOs. It also lays out strategies designed to lower the percentage of income that residents must spend on housing, improve infrastructure, transportation and access to jobs and increase the availability of affordable housing.
The plan has already awarded many grants for affordable housing planning and created a framework for incentivizing and increasing investment in affordable housing units.
How Are Tech Companies Responding to the Bay Area Housing Crisis?
Increasingly, top tech companies in the Bay Area are interested in helping create solutions to the Bay Area housing crisis. One strategy that some tech companies have adopted in an attempt to mitigate the Bay Area housing crisis is to build new company housing specifically for their employees. Allowing employees to live in stylish, functional campus housing keeps those employees and their high salaries off the wider housing market. Some tech companies are also committing to investing in affordable housing construction.
Google, for example, invested in a number of modular homes to house its employees. The company bought 300 modular apartment units to use for employee housing, placing an order for nearly $30 million. The units are located at NASA’s Ames Research Center, very close to the Google headquarters complex in Mountain View. Additionally, NASA is building another 1,900 units, which it will offer to NASA employees, students studying at the research center and Google workers.
Google has had plans for a couple of years to complete an ambitious new building project in Mountain View. The project would include 6,600 residential units, and Google has pledged that 20% of these units will be classified as affordable housing and offered at below-market rates. The developed area would include office space, retail centers and 35 acres of public areas in addition to residential units.
In June of 2019, Google additionally announced a stunning billion-dollar investment in affordable housing: the company plans to build 20,000 homes across the region, many on a mixed-use campus in downtown San Jose where thousands of its employees would also work. This comes on the heels of a similar announcement by Microsoft that it would invest $500,000 in affordable housing in Seattle.
Facebook, similarly, has pledged to design 1,500 housing units in extremely pricey Menlo Park, where monthly rent for a typical one-bedroom apartment exceeds $3,000. Facebook is also looking into modular housing for these units. It will classify at least 225 of those units as affordable housing and price them below the standard market rate.
Like Google, Facebook will turn this area into a new complex with shopping, restaurants, public spaces and apartment buildings for its workers. This planned community, called the Willow Campus, will offer almost two million square feet of office space, a massive hotel, a cultural center, two parks and a host of retail space.
Facebook has also offered a $10,000 bonus to employees who choose to live within a certain distance from the campus. This incentive helps employees by cutting down lengthy commute times and boosts productivity by allowing employees to arrive at work refreshed and stay late if they need to. But it also keeps workers from colonizing lower-rent areas that are at some distance from the campus. This means tech workers are less likely to overrun lower-income neighborhoods and push out longtime residents.
Finally, Facebook founder and CEO Mark Zuckerberg, along with his wife, Priscilla Chan, helped to found a fundraising mission that aims to raise $500,000,000 to keep housing affordable throughout the Bay Area. So far, Zuckerberg and Chan have contributed $40 million to this endeavor.
The billionaire Mark Benioff, the co-founder of Salesforce, and his wife have given tens of millions of dollars to subsidize affordable housing in the Bay Area and fund research on alleviating homelessness. The duo also recently supported a successful ballot measure that will tax big Bay Area companies to help fund homelessness relief efforts.
United Airlines, which has a large maintenance base near San Francisco and employs about 12,000 people in the area, has also considered building affordable housing units for its employees. The company discovered that many employees, after working their minimum requirements in the Bay Area, asked to transfer to other cities with lower housing costs.
Though it’s not a tech company, the bank Wells Fargo has pledged to invest one billion dollars in affordable housing as part of a nationwide effort. The bank has a shortlist of seven cities where it intends to concentrate its efforts, but it has not yet released their names.
Find Affordable Housing with Marcotte Properties
Marcotte Properties wants to make finding housing in the Bay Area easy and stress-free. Request a tour of one of our apartments or check out our properties to learn more about affordable apartments in the Bay Area. Contact us online today or call us at 800-538-1724.
- http://default.sfplanning.org/publications_reports/Housing-Needs-and-Trends-Report-2018.pdf (22)
- http://default.sfplanning.org/publications_reports/Housing-Needs-and-Trends-Report-2018.pdf (37)