What does George Lucas have to do with Facebook? They’re both embroiled in an extremely dire Bay Area housing shortage that’s holding back the region’s economic potential. This is a problem not just for the Bay Area but for the country as a whole.
The stretch of the United States running from San Jose, north through Silicon Valley, up to San Francisco and into the North Bay suburbs is the one of the most prosperous places in the history of humankind. But for the dynamic enterprises in that part of the country to live up to their full potential—and for Americans as a whole to benefit from them—we need to combine innovation, talent, and venture capital with old-fashioned things like buildings and people. And right now, idiotic land-use policies are restricting the area’s growth.
George Lucas currently stands accused of “inciting class warfare” by Caroline Lenert, head of the North San Rafael Coalition of Residents in Marin County.
What’s Lucas’ sin? Does he want to confiscate the estates of wealthy landowners and hand the property over to peasants? Burn down the vineyards? Increase marginal income tax rates? Nope. He wants to sell a portion of the land occupied by his ranch to a developer who plans to create some affordable housing. The move is made not for profit (Lucas is already rich, and it’s hard to make money doing low-income housing development) but rather as a mix of charity and revenge. The charity is easy to see. The revenge is that local anti-development community activists have been blocking his plan for a third expansion of Lucasfilm’s production facilities on the property. If local busybodies don’t want to see the land used for business, Lucas figures, let them be annoyed by proximity to poor people.
Meanwhile, San Francisco—one of the most expensive cities in the United States—added just 418 new housing units in 2011, the fewest since 1993. What’s more, 149 existing units were removed, leading to a nearly nonexistent increase in housing supply.
Farther south in Menlo Park, Facebook raised billions of dollars in an IPO, instantly putting millions of dollars in the hands of early employees and investors. But as Trulia’s economist Jed Kolko notes, the surge of cash will create losers, by bidding up the cost of local housing. “If Facebook were in Texas or North Carolina,” he observes, “developers would have been building new homes in anticipation of this day,” but in Silicon Valley—as in San Francisco and Marin County farther north—it’s essentially impossible for new construction to meet rising demand for living space. So some of the people living in the area who didn’t just reap a financial windfall are poised to be priced out of their homes as high rents get even higher.
The superficial explanation for the outrageously high housing prices in the Bay Area is that that there’s not much developable land, especially on the peninsula between San Francisco and San Jose. In fact, the major reason is that the NIMBY (“not in my backyard”) thinking that’s plagued Lucas has run amok throughout the region.
The vast majority of Menlo Park land, including areas quite close to the downtown core and the commuter rail station, is zoned exclusively for single-family homes. Much of that land is in superrestrictive “residential estate” districts where lots must be at least 15,000 or 20,000 square feet. Even in the small portion of the city zoned for high-density apartments, the density allowed is in fact low. Buildings in the zone must occupy no more than 30 percent of the lot they’re on and cannot exceed 35 feet in height.
This limits growth. When automobile manufacturing was a cutting-edge industry, not only did the entrepreneurs get rich and the workers earn a decent salary, but whole regions boomed. Between 1900 and 1930, 1.3 million people moved to Detroit, quintupling its population. By contrast, the combined populations of San Mateo and Santa Clara counties in Silicon Valley have grown by only about one-third during the 30-year computer boom. The pace of growth is even slowing down and has been below the national average for the past 20 years. There’s nowhere for extra people to go. Ironically, the pioneers of high technology have forgotten some of the basic technologies that make modern prosperity possible—detached homes with small yards, single family homes that share connecting walls, elevators that allow for the construction of very tall buildings where demand is high. The result is that the Bay Area is weirdly inefficient at translating high-end employment into broader job growth. Comparing the San Jose metro area (which includes Silicon Valley) to Greater Houston, Ryan Avent observes that Houston creates twice the number of total private sector jobs per new technical jobs as San Jose.
This is an issue of national importance, in part simply because this is one of the most prosperous regions in the country. The median wage in the San Jose area is 45 percent above the national median. In San Francisco it’s one-third higher. Even low-wage workers in the Bay Area earn more than low-wage workers elsewhere, and these are the workers who get squeezed out when only millionaires can afford “residential estate”-sized parcels of land.
There’s no substitute for being in the hub. Venture capitalists like to be near the companies they invest in so they can know what’s going on, and entrepreneurs like to be near VCs. The risk of going to work at a startup is much lower if there are many other startups in town, since if your company goes belly up you can find an expanding firm to join.
The story of Lucas’ squabble with his neighbors has attracted national attention because it’s funny, Star Wars is popular, and the affordable housing denouement is an amusing way to skewer limousine-liberal hypocrisy. But the broader, banal, region-wide issue of mandatory suburbanism—legally required large lots, plentiful parking, and short buildings—is a deadly serious issue for the future of the American economy.