The middle-class renter vanishing act.

I’ve been leasing Silicon Valley rentals since 1989, and lately I’ve noticed a big change.

Virtually every rental I’ve leased over the past twenty-eight years has been what might be called “serviceable”:  it’s clean, it’s freshly painted, it might even have new floor coverings and light fixtures, but it’s nothing fancy.  It’s older housing stock.  It’s likely to have been a rental for a long time, often decades, perhaps forever.  It may have been updated at some point in its long life, but not with the latest and greatest finishes–no acres of granite.  Typical Mom and Pop Landlord stuff.

Rarely are these rentals exciting, but invariably they’re in a great neighborhood.  Great neighborhoods are never cheap, but these rentals are an affordable (by our peculiar mid-Peninsula standards) way to get a safe area, convenient location and highly-regarded schools:  one definition of quality of life.  Until recently there’s been solid demand for this kind of “value” housing.  It’s attracted people more interested in nailing the basics than in bling.

Apparently, all these people moved to Portland.

Today’s Silicon Valley renters seem, in large part, to equate quality of life less with good location, more with recent upgrades.  New apartments have luxury finishes not available on new condos as recently as ten years ago.  Many older apartments, especially in larger complexes, have been updated to a standard higher than that of most owner-occupied condos of similar vintage.  And looking through single-family Palo Alto rentals the other day, I was amazed at how many are recently and completely remodeled.  They aren’t expensive remodels, but they definitely aren’t the Eisenhower-era hardware that Mom and Pop Landlord typically favor for their rentals.

I suspect there are at least two reasons for this.

First is the well-documented preference of millennials for a memorable and luxurious experience.  This generation looks for value, but it’s luxury value.  And the vibe I’m getting is that many of the young professionals who come here now grew up in greater affluence and comfort than previous generations.  Their threshold of acceptable housing is higher.  “Good enough” isn’t.

I’ve even found that some new arrivals see Silicon Valley less as home sweet home, more as a premium luxury experience, like renting a castle in Tuscany.  Last year I ran across a guy spending his considerable disposable income on the “full Silicon Valley”:  a new $10k/month apartment and a leased Bentley.

But beyond this caricature of life in Silicon Valley’s fast lane is the type of person who typically migrates to Silicon Valley these days–and the type of person who’s leaving.  Most of the employment created here since 2010 is either highly paid (jobs in computer hardware, software, internet and information services, and biotech) or poorly-paid service jobs.  Mid-tier “mid-skill, mid-wage” job creation has lagged far behind, the percentage of mid-tier jobs has shrunk and the median wage of these workers is less than half that of the top tier.  The increase in top-tier jobs is attracting highly educated people accustomed to a high standard of living.  People with less education–or with plenty of education, but without the skills needed to live comfortably in Silicon Valley–are leaving.

Even though well paid, those coming to Silicon Valley almost invariably are forced to compromise on their housing.  I keep remembering what a client told me a few years ago:  “Anywhere else we’d be rich.  Here, we’re just average”.  The Valley’s high cost of housing means that new arrivals will almost certainly live in a home smaller than what they came from.  That’s a necessary and apparently acceptable compromise.  But trading new finishes for old apparently isn’t.  Quality of life is less about size, more about newness and luxury.

Meanwhile, those with simpler expectations–or unwilling to accept the increasingly stringent compromises demanded of the average Silicon Valley resident–are moving to Portland.

copyright © John Fyten 2017

 

 

 

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