The well-respected Urban Land Institute recently looked at “the role immigrants play in local housing markets”, focusing on five metropolitan areas including the San Francisco metro. How will immigration affect real estate in these areas and influence the type of “housing products” they build? The answers may challenge the orthodoxy on how to solve Silicon Valley’s housing crisis.
Today’s Silicon Valley home buyers aren’t the Valley home buyers of fifty years ago, but the “live better” sentiment is still relevant, as is the “housing product” pictured.
Top takeaways of the ULI’s report, with my comments in italics:
Without immigration, “regions with strong housing markets, such as San Francisco, would not have recovered so quickly after the recent recession”. This, plus the Bay Area’s impressive economy, are credible explanations for the region’s booming real estate market.
When immigrants become homeowners, “many exhibit strong preferences for single-family detached homes”. But I thought no one wanted boomers’ sprawling ranchers!
Immigrants looking to buy “are increasingly” attracted to the suburbs, but immigrants who rent “are also settling in the suburbs at growing rates”. But I thought the suburbs were just a quaint relic of the boomer lifestyle!
- Immigrant-driven demand for single-family homes “should spur new homebuilding” in our dreams but much of it “may be met by the resale of existing homes in established middle-income and high-end suburbs”. Okay, you mean like Palo Alto, Los Altos and any number of other red-hot Valley cities I could mention? Sellers, many of whom could be “higher-income, downsizing baby boomers” would then buy “smaller single-family homes and townhouses [and] condominiums”, or rent. In a perfect world, but not, so far, in Silicon Valley.
The last takeaway reminds us that the Valley is an anomaly in real estate, as in so many other things. Here, new single-family home construction is limited almost exclusively to high-end spec homes in pricey neighborhoods. Developers aren’t building new Cherry Chases–mile after mile of affordable detached homes on standard-size lots–because 1) this isn’t the 1950s, and 2) there’s no room, and 3) even if there was, local land costs don’t support 1950s-style low-density housing. The new Cherry Chases are on the fringes of the Bay Area, in Solano and Sonoma Counties, or even further afield in the Northern California “mega-region”.
And Silicon Valley’s boomers aren’t in any hurry to trade the single-family homes they’ve owned for forty years for the stairs-R-us two-story detached homes and three-level townhomes that make up most of the new construction in this area.
Now, about that challenge to orthodoxy I mentioned. One of the interesting things about the history of ideas is that yesterday’s bleeding-edge response to a social crisis becomes today’s facile orthodoxy becomes tomorrow’s obsolete solution.
There’s no question that we need more housing in Silicon Valley. Let me repeat that, for any speed readers out there: we need more housing. We might even need 10,000 more luxury apartments, the only kind it pays private developers to build here, although I’m not sure how that helps maintain the Valley’s economic diversity.
But if both research and market reality tell us that many immigrants and/or young buyers, the future of Silicon Valley, want a detached home in the suburbs, does the high density inherent in “build big” create the housing most buyers want? Is it a long-term solution? Or does it just create emergency housing with granite countertops?
Kids, don’t try this in your micro-unit.
Now, I know that home buyers shouldn’t want sprawling ranchers on large lots, because resources are scarce and there’s not enough to go around and people need to take their medicine. For the forward thinkers, it’s just more proof that consumers are irrational. And, obviously, there is strong unmet demand for high-density housing in Silicon Valley. The minimalists are fine with it, while the pragmatists understand that housing requires trade-offs; they’re willing, at least in the short run, to trade aspirations for convenience.
But trade-offs work both ways. The desire for a detached home runs broad and deep, transcending age and cultural background. Call it the American Dream or call it the squandering of scarce resources. Whatever. It’s real, and it’s not going away anytime soon. People want what they want, even if it means trading an easy commute for Sonoma or Stockton or Chico.
I have a feeling that in twenty or fifty years people will look back on this period as a pivotal point in the direction of Silicon Valley. Either we built big and pushed Silicon Valley further toward the kind of congested urban core that people have been fleeing for 150 years, while not creating the kind of housing that meets the aspirations of a large part of the market, still not building enough homes for everyone who wants to live here, and still not reversing the flight to the Bay Area’s new suburbs fifty or one hundred or two hundred miles away.
Or we built medium, and put the remaining scarce resources and political will into the even more challenging job of getting commuters from Chico to the Bay Area without clogging freeways. Because the evidence suggests that they’re as much the future of the Bay Area as anyone willing to live in a micro-unit.
They don’t still burn heretics at the stake, do they? I mean, not literally?
The bottom line: the length and effects of this real estate boom continue to blow my mind, but as the ULI’s report reminds us, it’s based on strong fundamentals. Demand is real. And the type of housing that’s the core of our market, detached homes in the suburbs–housing that proves its broad appeal by recovering first in an upturn and tanking last in a downturn–is likely to stay relevant and widely desirable for years to come.
That’s not to say that Silicon Valley real estate has moved beyond downturns. It is to say that, for better or worse, the future of Valley real estate may well be limited only in the minds of the skeptics.
copyright © John Fyten 2017