Photograph by Kathy De La Torre
The cost of rentals in Silicon Valley is soaring, but even more frustrating for those seeking to put a roof over their heads in this booming economy is the diminishing inventory of rental units. Signs like this one at the corner of Avery and Town Terrace in Los Gatos, don't stay up long.
Rental market skyrockets and diminishes
By Sue Stone
A recent statistic published by the California Budget Project brings the local housing crisis into focus: "Despite a booming economy, California's homeownership rate is the second lowest in the nation. Only 55.7 percent of California households owned their own home in 1999, compared to 66.8 percent for the nation as a whole."
The study reports that only 27 percent of households in the Bay Area could afford the median price home in this region, whereas nationally 55 percent of households could afford to purchase the median price home in 1999. As a result, almost two-thirds of the households in California are renters.
Renting has always been the alternative to owning a home, except that now renters are faced with the same problem homeowners have encountered for the last few years. The rental market is following the path of the housing market--extremely high demand and minimal inventory are driving up prices all around the Bay Area.
Vacancy rates average between 1.9 percent and 0.3 percent--the lowest rates since 1996. In an area such as Los Gatos where apartments and residential rental homes are a small percentage of the total housing market, it is not uncommon to find fewer than a dozen listings in the newspaper.
Recent studies show that 45 percent of California renters were unable to afford the Fair Market Rent for a two bedroom apartment in 1999. With a one-bedroom apartment averaging $1,550 per month in Santa Clara Valley and a two-bedroom unit renting for more than $2,000, it is easy to see why people are having a hard time paying the rent.
Natives of Northern California and, especially, the Bay Area are not immune to the outrageous rents and housing costs but they are somewhat desensitized since they have lived in this area all their lives. People relocating to this region, on the other hand, are almost in shock when they arrive for their first home search. The Bay Area's "extreme" housing market has lead many high-tech employees to change their minds about moving here at all. Is working in the heart of Silicon Valley truly worth the cost of living here?
Robert Catalano, president of Real Estate Connection, offers one solution for keeping the balance even between jobs and housing--make the corporations who are hiring responsible for ensuring that adequate housing is available before starting a massive recruitment effort. Catalano says that Real Estate Connection, a residential property management firm, has a large percentage of Silicon Valley new hires as clients.
"If companies are going to build these huge campuses as outlined in recent news articles, then they should also work with the cities on building housing, even possibly sharing expenses," said Catalano. "It is in everyone's best interest, especially the corporations, that housing needs meet employment needs, but currently, that is not the case."
Many relocation recruits are here for two to three years to fulfill a specific assignment, or for intern opportunities. These new employees are not in the market to buy a home. They are looking for rental properties.
With the high market demand for available homes of any kind, a lot of new recruits cannot afford to make the move unless the company pays part of the bill or increases their wages. Most companies are adjusting salaries to accommodate these needs.
The upward-spiraling salaries must be working because even though prices are up as much as 40 percent since the first of the year, there is no shortage of renters willing to pay the price.
"We have had trouble keeping our website current because the day we list a property it is rented," added Catalano. "Our properties range in price from $800 for a studio apartment to $8,500 for an executive-style home, and as quickly as they become available they are leased."
The question then becomes, if new employees are being compensated enough to pay the rising cost of housing in the Bay Area how much of their paycheck goes toward rent? According to the Budget Project Report, the last recorded statistics show that nearly a quarter of renter households spent more than half of their income on rent. For low-income renters the figure is closer to two-thirds. The recommended ratio is 25-30 percent for housing expenses.
Photograph by Kathy De La Torre
The competition for vacancies like this one in Los Gatos has become fierce.
The fastest growing segment of renters continues to be those making more than $50,000. Initially this segment of the renter population was characterized as young urban dwellers with no children and no wish for a long commute. Living close to work was of prime importance.
Those same characteristics exist today but now the renter population has grown to include families and professionals making $60,000 or more primarily because they still cannot afford to buy a home in the area.
The California Budget Project Report provides a few reasons for the high demand of housing in the Bay Area. A separate study included in the report entitled, Locked Out: California's Affordable Housing Crisis examines the cracks in the foundation of the state's housing situation. The study outlines four root causes:
* A dramatic decline in the construction of new housing units: From 1990 to 1999, building permits were issued for an average of 110,581 units of housing each year. In contrast, permits were issued for an average of 215,585 units per year during the 1970s and 203,369 units per year during the 1980s. The shortfall in production particularly affects multifamily housing. Between 1990 and 1999, the state added an average of 28,089 units per year of multifamily housing, just 25 percent of total housing built during the decade, and a 69 percent drop from the levels of the 1980s.
* An imbalance between job growth and housing construction: The state as a whole has added almost four jobs for each new unit of housing, well beyond the 1.5-to-1 ratio recommended by housing policy experts. The deficit is most extreme in the Bay Area, where the dotcom economy created almost 16 new jobs for every new unit of housing in San Francisco from 1994 to 1998 and nearly 11 new jobs for every new housing unit in San Mateo County.
* Incomes have failed to keep pace with rising housing costs: Adjusting for inflation, the income of the household exactly at the middle of California's income distribution fell by 3.9 percent between 1989 and 1998. While incomes for the median homeowner family outpaced inflation modestly (24 percent), those of renters and low income homeowners failed to keep pace with inflation.
* A decline in both state and federal housing assistance: In California, state housing spending dropped substantially during the 1990s, from 0.7 percent of total spending in 1990-91 to 0.2 percent of total spending in 1999-00. Federal housing assistance has failed to keep pace with demand. A recent survey of local housing authorities found 371,740 families were on waiting lists for federal Section 8 housing assistance, more demand than three times the 104,133 families receiving assistance.
The report calls for a renewed commitment to affordable housing, including increased federal housing spending; using existing state and local resources for affordable housing more effectively; and increased state funding for affordable housing, particularly multifamily housing.
In keeping with Bob Catalano's proposed solution, the report stresses "meaningful partnerships between the public and private sectors to address the housing problem." The affordable housing crisis demands that city planners, landowners, corporations and other parties work together to achieve reasonable, concrete solutions.
Robert Parry, president of the San Francisco Federal Reserve Bank, would probably agree that housing needs in Northern California are a shared responsibility. At a recent breakfast meeting in San Jose, Parry speculated that the only issue on the horizon which could derail Silicon Valley's economic train is lack of housing.
"The issue of providing additional housing is in direct conflict with the anti-growth movement which is present in every one of our Silicon Valley cities," said Penny Pompei, executive vice president of the Silicon Valley Association of Realtors.
Saratoga, California Since 1955
