Ever wonder why home prices are up, way way up? A recent article posted on RISMedia indirectly explains why.
According to RISMedia, the average wage in the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area–call it “Silicon Valley”–rose 22.59 percent from 2010 to 2015. That’s the fourth-highest average wage increase in the nation during the period.
The San Francisco-Oakland-Hayward MSA (which includes San Mateo County) came in 6th, with average wages up 20.15 percent.
That’s the good news, I guess. The fair-to-partly-cloudy news is that Silicon Valley average income was a “whopping” $59,603 (and thirty cents). New Apple hires right out of college make twice that or more and end up renting a room in a hacker house.
And, of course, lots of Valley-ites aren’t making 22.59 percent more now than they were in 2010. In fact, workers in the lowest wage tier make less on average, in inflation-adjusted dollars.
Here’s the punchline you knew was coming: a flood–or maybe it’s a tsunami–of highly-educated, highly-paid workers has pushed up the statistical average income in this area. Even if that increase had been evenly distributed throughout Silicon Valley society, a 20 percent rise in average income wouldn’t begin to keep pace with the rise in Valley home prices since 2012. Heck, we’ve had spring selling seasons when home prices went up 20 percent or close to it in a matter of months.
Which explains why the percentage of Santa Clara County residents who can afford the median-priced home has been under 20 percent for most of the past two years.
The obvious answer is more housing, although not, regrettably, more affordable housing–soaring land, labor and materials costs make that unlikely without stronger public-sector support. No, in Silicon Valley the only “affordable housing” the private sector can deliver is housing the middle class can afford.
That’s not debatable. It’s also not debatable that we need lots more starter housing near transportation. What is debatable is whether the viable, long-term answer is focusing solely on starter housing that young buyers outgrow as soon as they start a family, building new apartment complexes with rents that only well-paid tech workers can afford, basing parking requirements on projections of commuting trends that developers must be laughing at when they aren’t selling them to planning commissions and city councils (“our tenants won’t have cars, honest!”), and undermining the low-density appeal of single-family neighborhoods by increasing density with Accessory Dwelling Units.
Because all of this is what I call Plan B housing: “Gee, it’s not what I want, but I guess I can live with it.” When the local economy and real estate market are booming, Plan B housing (and let’s throw two-hour commutes in there) looks okay. It may even look better than okay, through the rose-colored glasses we wear when things are humming.
But when the economy and real estate are in the tank and housing demand shrinks–and I’ve been there twice–there are only enough buyers and renters for Plan A housing: the housing virtually everyone really wants.
In the past that’s meant that single-family homes held their value better than condos and townhomes when the market turned soft, but with one in four Bay Area homeowners projected to build a granny unit over the coming years, we may not have any single-family neighborhoods as home buyers define them, just thousands of single-family neighborhoods transitioning to duplex neighborhoods. The minimalists–both of them–may still delight in starter housing lacking space, privacy and a yard. The investors may still hunger after a single-family home in a neighborhood impacted by granny units, as long as they have a cash cow of their own out back.
But minimalists and investors aren’t the mainstream market, and real estate sinks or swims depending on what the mainstream does. Come the downturn, it’ll be interesting to see how the mainstream votes with its pocketbook for our housing choices. It may give “ghost homes” a whole new meaning.
As mighty as Silicon Valley is, it hasn’t managed to repeal the law of unintended consequences. Solve one problem, create a few more.
copyright © John Fyten 2017