Neighbors Clash in Silicon Valley

SAN JOSE, Calif.—As Silicon Valley swelled with technology jobs for much of the past half-century, the city of San Jose was happy to serve as its bedroom community, blanketing vineyards and plum orchards with homes until it became the nation’s 10th-largest city.


But all that building has taken a toll, leaving this city of roughly one million people low on land and fiscally stretched. Now, grappling with soaring housing costs thanks to the region’s continued job growth, city officials are criticizing neighboring cities for failing to create enough housing of their own even as they continue to cut ribbons on new office buildings.


One recent target: nearby Santa Clara, which is planning a major development of offices and retail that includes little residential construction. San Jose has taken the rare step of publicly opposing the project, saying it would add far too many jobs, exacerbating the region’s housing shortage.


San Jose “cannot single-handedly solve the housing problem,” said Kim Walesh, the city’s economic development director. “It really is going to require other cities stepping up.”


The cities at the center of the nation’s thriving technology industry are grappling with a surprising quandary: too much job growth. From San Jose north through Silicon Valley’s low-slung communities to San Francisco, the region isn’t creating nearly enough housing and infrastructure to keep up with the ravenous hiring of Google Inc., Apple Inc., Uber Technologies Inc. and others.


This imbalance is only poised to grow more severe in the long-term, which could make the region less appealing for the nation’s fastest-growing corporations.


“It is hard to understand how we’re going to get around this,” said AnnaLee Saxenian, a professor at the University of California, Berkeley, who studies Silicon Valley and other technology hubs. “The whole Bay Area really is having a very hard time creating sufficient housing.”


Housing has lagged behind commercial projects in part because it is less lucrative for municipalities. Land that goes to residential uses tends to bring in less tax revenue—and requires more services like schools and parks. San Jose last year estimated that for every 1,000 square feet of single-family housing, the city budget takes a net loss of $255 a year, compared with a gain of $1,064 for the same size commercial space.


So while every city in Silicon Valley acknowledges there is a regional housing shortage, the cities typically follow the preferences of their own residents—not the region as a whole—when approving new projects.


“This is a classic collective-action problem, where what is rational for each city’s individual perspective is highly suboptimal for the region,” said Gabriel Metcalf, chief executive of the nonprofit planning think tank SPUR. “These supposedly local decisions have huge regional impact.”


Of course, conflicts over rapid growth have long been a feature of Northern California. But the latest tech boom has created so many jobs that it would take a massive building boom of housing to meet the demand.


San Francisco, San Mateo County and Santa Clara County together added 385,800 jobs between 2010 and the end of 2015, according to the California Employment Development Department. Over the same period, building permits were issued for just 58,324 housing units, according to the U.S. Census Bureau, enough space to hold roughly 150,000 new residents.


Rents zoomed higher. An average two-bedroom, one-bathroom apartment in Silicon Valley fetches $2,506 a month, up 68% from 2010, according to California-based data company Real Answers. The median home price in the three-county area is $946,000, up 86% from 2010, according to CoreLogic.


That is sparking an antidevelopment backlash. In San Francisco, voters have passed multiple initiatives making commercial development more difficult along the city’s waterfront. Residents of Cupertino, home to Apple, are pushing for an initiative that would make many large developments face a citywide vote. Palo Alto last year passed a moratorium on new development in its downtown.


Meanwhile, residents pack into homes with multiple roommates or move to distant exurbs where housing costs are cheaper.


Tensions have flared throughout the area. Google’s home of Mountain View has been trying to pivot to more housing over offices, and city officials have targeted an area near Google’s headquarters that would hold up to 10,000 units. This is motivated in part by a “severe jobs-housing imbalance,” said Randy Tsuda, community development director for the city of 80,000.


Balance is central to the fight between San Jose and Santa Clara. A city of 120,000, Santa Clara two years ago struck a deal with developer Related Cos. to turn its golf course, previously a landfill, into a town square in the shadow of the new football stadium for the San Francisco 49ers. Plans call for 9 million square feet of development, or the size of three Empire State Buildings, including 1,360 housing units but dominated by retail and offices.


Santa Clara’s projections show that if the development is fully built, the city would add 49,000 jobs but just 16,000 housing units citywide by 2035.


“That is going to create demand for housing elsewhere, especially in San Jose,” said Ms. Walesh, that city’s economic development director. “It brings them more out of balance.” Santa Clara’s ratio of jobs to housing would rise to 3 to 1 under its projections, compared with 2½ to 1 in 2008 and San Jose’s 0.87 to 1 today.


Santa Clara mayor Lisa Gillmor said she would prefer to see more apartments at the Related development, but environmental regulators don’t want additional housing on a former landfill. The city is already building 13,000 units elsewhere, she said, noting that managing the region’s rapid growth has been difficult.


“We’re responsibly growing our city as much as we can,” she said, including construction of many “high density projects that are well above our comfort zones.”


San Jose, meanwhile, is trying to steer itself more into balance. While city officials want to add 120,000 housing units by 2040, the city has just 15% of its land devoted to employment-heavy uses like office and retail. That compares with 24% in Santa Clara, and 28% in Mountain View, according to a recent SPUR report on San Jose.


Increasing that percentage while creating more housing is no easy task, said Harry Freitas, San Jose’s planning director.


“It’s a struggle,” he said. “We’re trying to urbanize and it takes some getting used to.”

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