Conventional indicators and statistics still show that housing
affordability and availability in Silicon Valley remains a challenge.
Median home prices are high at $746,800 and we have
managed to be successful in retaining our status as one of the
least affordable places to live, according to the National
Association of Homebuilders Housing Opportunity Index.
The Housing Opportunity Index shows that only 14.9% of
homes are affordable to families and individuals earning the
median income. This puts Silicon Valley in second place
behind New York at 6% with Boston in third at 24%.
The most affordable high tech region is Raleigh-Carey, North
Carolina at 65.8%.
| 2006 Q1 Housing Opportunity Index |
| San Jose, CA |
14.90% |
| Austin, TX |
58.30% |
| Boston, MA |
24.80% |
| Chicago, IL |
51.30% |
| Denver, CO |
62.40% |
| NJ/Philadelphia |
56.40% |
| New York, NY |
6.10% |
| Portland, OR |
42.50% |
| Raliegh-Cary, NC |
65.80% |
| San Diego, CA |
5.20% |
| Seattle, WA |
30.60% |
| Washington, DC |
23.60% |
Residential property appreciation rates over a short period
of time show a more pleasant picture. Our region sits in the
middle of the pack with housing prices appreciating 25.9%
between 2003 and 2006. The lowest rate of appreciation was
at 6.7% in Austin, Texas and the highest was in Washington,
DC at 52%.
Focusing on Silicon Valley, recent data collected by the
Association of Bay Area Governments (ABAG) offers some
insight into why prices continue to escalate. In their recently
released report called "A Place to Call Home" ABAG measures
how well cities are doing in achieving the housing goals
set for the 1999-2007 housing element cycle. For the ninecounty
Bay Area, ABAG found that 80% of the homes
needed were permitted. For Santa Clara County and San Mateo
County, the figure is 75% and 58% respectively. Digging a
little deeper into these numbers shows that cities excel in permitting
homes for the above moderate range. Only 19% of the
homes needed in San Mateo County for very low-income
families was met. Santa Clara County, a county who's numbers
are significantly bolstered by the leadership of San Jose,
permitted 55% of the very low income homes needed. The
regional average was 34%. These numbers show that Silicon
Valley is falling short in meeting the overall need for homes.
They also show that we are doing particularly poorly in
permitting homes for those most in need.
Barriers to Success
There are many barriers to building more homes but there are
a few that are most significant, namely, how local governments
are financed.
Regional Housing Needs Allocation
(RHNA) Permitted |
| County |
Very Low
Income |
Low
Income |
Moderately
Low Income |
Total |
| Alameda |
24% |
38% |
20% |
65% |
| San Mateo |
19% |
45% |
16% |
58% |
| Santa Clara |
55% |
98% |
17% |
75% |
| Regional Total |
34% |
70% |
29% |
80% |
In every decision that we as individuals make, cost is usually
a factor. The same goes for cities. When considering a land use
permit, an important question the city must ask itself is what
kind of financial impact the future development's needs will
have upon the city. Demands on city services, schools and
infrastructure, all of which must be maintained at some cost,
are associated with housing construction and to a lesser extent,
office parks or big box retail. As a result, fiscal considerations
have become a major barrier to building homes. These considerations
were made more acute five years ago when the State
government decided to balance its budget, in part, by taking
local government money.
Proposition 1A was passed in 2004 to protect local governments
against future State "raids" and to provide local governments
with much-needed financial certainty from year to year.
Housing advocates also hoped this certainty would lead to more
favorable outcomes when considering housing permits.
However, the allegation that housing doesn't pay for itself still
persists. Residents wary of a decline in city services and quality
of life continue to express concern over new home construction,
especially if those homes don't mirror the ones they live in.
This is a problem that is difficult to solve. Cities are
entrenched in the way local governments are financed and any
talk of change makes them very uncomfortable. For example,
cities such as Gilroy have worked hard to grow their revenue
base through outlet stores. Any changes to how local governments
are financed would need to respect those decisions.
It is unrealistic to expect substantial change to how local
governments are financed. However, there are ways that we
can provide a work-around solution. Very simply, cities and
counties should be rewarded for good land use planning and
the resulting housing production.
Programs such as the Metropolitan Transportation
Commission's Transportation for Livable Communities are an
excellent example of a way to reward cities. The program
awards grant funds to cities that meet certain housing production
requirements at specific densities near transit. So far,
23 housing developments have been awarded $7 million to
create nearly 2,700 new housing opportunities throughout the
Bay Area. MTC expects to provide up to $30 million to qualifying
projects in the upcoming round of grants. This success
should be expanded locally, regionally and statewide.
Another huge challenge in meeting the need for more homes
is community opposition. Rarely does a community open up
its arms to welcome a developer. Instead, developers are seen
as people who wish to bring unwanted change to a neighborhood,
change residents fear will decrease the quality of
schools, increase traffic congestion, and add demands for existing
city services such as parks and libraries.
The end result of systematic community opposition can be
found in reduced densities, heights and the overall number of
homes being built. Council by council, project by project, our
ability to meet the demand for homes with the limited land
available is whittled away through a reduction in the number
of homes ultimately approved for construction.
A good illustration of this is the Hyatt Rickeys site in Palo
Alto. The applicant originally sought 304 homes. The
surrounding community did not like the proposal for a number
of reasons and at the end of the day, a significantly scaled
back version was approved by the council for 181 homes. In
essence, the opportunity to house 123 additional families on
that site was lost.
This story is played out all across the State every week as cities
approve developments that squander housing opportunities.
Couple this with recent research out of UC Berkeley on infill
capacity statewide and the problem is magnified. The study
projects that 25% of the need for more homes can be accommodated
through infill, meaning 75% will be sprawl, leading
to the consumption of valuable open space, farmland and
requiring heavy taxpayer investments in new infrastructure to
serve sprawling communities.
To make matters worse, there has been an increase locally of
citizen backed measures to control or stop growth. Last year,
three initiatives in Cupertino that would have made it infeasible
to build condominiums and publicly funded affordable
homes qualified for the ballot. All three were defeated but the
this year some Cupertino residents qualified two more initiatives
to rescind the approval of two condominium proposals
near Vallco shopping center. In 2003, Palo Alto citizens tried
unsuccessfully to referend a city council-approved proposal
and in Redwood City, citizens overturned city council
approval of a cutting edge development for high rise residential
towers on the Bay. Sunnyvale citizens and San Carlos
residents have also tried to qualify measures but were narrowly
unsuccessful in meeting the letter of the law needed to place
them on the ballot.
Not all is gloom and doom. In downtown San Jose, leadership
has been taken by the council to kickstart highrise home production.
The end result is that 7 highrises are currently under
construction or are actively seeking a development permit
from planning totalling 1,747 new downtown residences. Five
more highrise projects are in the early stage for planning proving
that innovative policies can really help move the market
and help us reach our housing goals. This also shows that the
efforts San Jose has made in working with community members
have paid off.
The bottom line is that sincere community concerns must be
addressed and done so in a way that builds trust between
developers, neighborhoods and local government. Time and
resources must be spent in ensuring the neighborhoods are
brought into the planning process and money is made available
to address the legitimate neighborhood issues.
Looking Forward
| Median Income 2006 |
| Family Size |
1 |
2 |
3 |
4 |
| Extremely Low Income |
22,300 |
25,500 |
28,650 |
31,850 |
| Very Low Income |
37,150 |
42,450 |
47,750 |
53,050 |
| Low Income |
59, 400 |
67,900 |
76,400 |
85,800 |
| Median Income |
73,900 |
84,400 |
95,000 |
105,500 |
Last year, this report described the need for upfront planning
but the monetary resources did not materialize. This year, we
have a very real opportunity to put our money where our
mouth is. Proposition 1C, the affordable housing bond has
more than $1 billion set aside for unspecified transit-oriented
development programs and better planning. This money will
require additional legislation to determine how it is spent and
should be seen as an opportunity to create a statewide incentive
program for cities to build more homes.
The last major challenge to building more affordable homes
is the availability of funding. Proposition 46 resulted in an
influx of money to build affordable homes but that money has
been spent. Fortunately, Proposition 1C on the ballot in
November would provide $2.85 billion for affordable housing.
Although not all the money goes directly to affordable
homes, it is hoped that the passage of this bond will help
create the bridge needed until housing advocates, statewide,
are able to bring about a permanent source of funding for
affordable housing.
Much rests on the passage of Proposition 1C. It promises to
address several of the challenges to meeting the need for more
homes, homes that ensure the well being of families and individuals
who make our economy strong.
