Getting the Golden State Building Again

Google’s billion-dollar bet on new housing in California could signal the emergence of a pro-growth coalition.

By: Michael Hendrix
June 20, 2019 —

Google CEO Sundar Pichai has announced that over the next decade his company will convert $750 million worth of its own land to build at least 15,000 new homes across the Bay Area. Google will also establish a quarter-billion-dollar investment fund to encourage developers to build at least 5,000 affordable housing units, along with additional money to tackle homelessness.

Google’s pledge comes on the heels of similar announcements by its tech peers. Facebook founder Mark Zuckerberg’s philanthropy pledged $500 million to expand affordable housing in the Bay Area, and health-care giant Kaiser Permanente put up $200 million to ease housing concerns in and around Oakland. California governor Gavin Newsom has also called on other tech firms to kick in $500 million more. Big Tech’s interest in housing—for their regions and employees—is spreading beyond the Bay Area. Farther north in Seattle, Microsoft announced $500 million in low-cost loans to build affordable housing. 

Alphabet, Google’s parent company, is one of the Bay Area’s largest employers, with employee rolls growing by 23 percent in 2018 alone. Over the last eight years, the region has added 676,000 jobs but only 176,000 housing units, according to the Bay Area Council. The result? Soaring housing prices, choked traffic, and rampant homelessness. San Francisco now has more billionaires per capita than any city in the world—but also the nation’s highest poverty rate, adjusted for cost of living. Indeed, five of the six most expensive places to live in America are in the Bay Area. 

Even as one of history’s greatest growth stories has played out in Silicon Valley and San Francisco, the region looks much as it did 50 years ago. Trillions of dollars flow through sprawling suburban streets ringing the headquarters of Apple, Google, and Facebook, while farther north, San Francisco’s architecture remains surprisingly unchanged beyond downtown. Much of this additional wealth is not flowing into tech firms or their employees but into the pockets of incumbent landowners, through rents. This dynamic has increased inequality, hurt corporate bottom lines, and undercut the productivity and stability of one of the world’s strongest labor markets.

Students of history might see parallels between modern-day Silicon Valley and Industrial Age Britain, where a large share of the wealth gained from the advent of steam, looms, and rail went to landowners instead of industrialists or workers. As Britain’s economy grew, workers could afford to buy more food, but domestic cropland couldn’t keep up with demand, and imports were cost-prohibitive, thanks to Britain’s draconian Corn Law tariffs. So as wages grew, grain prices rose, and as grain’s cost rose, so did the rents paid by farmers. Much of Britain’s economic gains were soaked up by these costs. The upward pressure on wages from out-of-control food costs cut into businesses’ bottom lines, and workers and farmers felt fleeced by landlords. The Anti-Corn Law League, with members from both industry and labor, killed the law in 1846.

Today, a similar teaming up of business and labor, working and middle classes will likely be necessary to repeal restrictive land-use regulations. Political scientists once thought that local opposition to new housing could be overcome if big business, developers, and unions came together to support growth, but it turned out that homeowners—eager to protect their investments—were committed to shaping the myriad zoning laws and project approvals that cut through neighborhoods. The political power of these “home voters” has resulted in highly restrictive housing policies. “Not in my backyard,” they effectively say, resulting in the acronym by which they’re known: NIMBY.

The rise of “yes in my backyard,” or YIMBY, activists has begun to change land-use politics in America’s costliest cities and states. Younger and more media-savvy than their NIMBY opponents, YIMBYs have gained attention from pundits and policymakers by arguing that more housing demand should be met with more supply. California state senator Scott Weiner’s SB50 bill, which would have allowed denser housing near transit stops, received heavy media attention and Governor Newsom’s verbal support—only to fail in the state capital at the hands of suburban state legislators.

With California’s largest and most successful businesses now backing more housing supply, though, the political calculus may soon change. Developers will get low-cost loans from tech firms, and construction unions will want a slice of this new work. To the extent that new housing is built on land previously set aside for other uses, these developments may prove less threatening to homeowners living in neighborhoods zoned for single-family houses. California’s recent statewide reforms—allowing more development of accessory-dwelling units (ADUs)—depended on these new political tandems. Labor could make an extra buck building ADUs, and homeowners could earn more rental income without changing the look of their neighborhoods.

Firms like Google recognize that new housing supply means changing how development gets approved, not just locally but statewide. Google understands that its land—currently limited to office and commercial development—requires zoning changes allowing higher-density housing for all income types, including the not-so-poor. The firm’s “goal is to get housing construction started immediately,” Pichai says. This won’t be easy, but local politicians are already responding: the mayor of San Jose tweeted that he would propose up-zoning his city’s single-family neighborhoods, which currently take up 94 percent of San Jose’s residential land.

The housing shortage in America’s most productive metros reflects a lack of political will. Changing the political equation is the difference between Google’s 20,000 homes and California’s need for 3.5 million new housing units over the next decade. If Google’s billion-dollar bet in California signals the emergence of a new pro-growth coalition of YIMBYs and businesses, developers and labor, and the working and middle classes alongside the creative class, the politics of housing reform will change dramatically—for the better. 

This article courtesy of City Journal

Michael Hendrix is director
of state and local policy at the Manhattan Institute.


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