The San Francisco Bay Area seems to be on a housing treadmill. Just as housing inventory started to grow and prices responded accordingly in some areas, tech companies are planning to go public. Airbnb, Lyft, Pintrest, Slack Technologies, and Uber are expected to issue initial public offerings in 2019. This will mean an infusion of cash into the pockets of the many tech workers who own their company’s stock. The logical thing to expect these workers to do is to use the cash to purchase a home. No more growing housing inventory and possible growing housing prices.
IPOs and Housing Prices
Doubt the correlation between IPOs and housing prices? Market Watch has a good article on the subject.
Zillow examined the link between Facebook’s IPO in 2012 and rising home prices across the Bay Area and found that home values rose more quickly in neighborhoods with higher concentrations of Facebook employees after the social network became a publicly-traded company.
Specifically, every 10 Facebook employees living in a given U.S. Census tract at the time of the IPO were associated with an extra 1.6-percentage-points increase in home values over the following year, the report said.
In dollar figures, the median value home in a neighborhood with a high concentration of Facebook workers rose by an extra $20,800 between May 2012 and May 2013.
In the Bay Area, companies highly valued by market standards, as well as startups hoping to join the value crowd at some point, are concentrated in close proximity to one another. They comprise the world-famous Silicon Valley hub. This concentration affords the most return on investment for the companies, for their host government jurisdiction, and for homeowners in the community.
Clusters and cluster strategies cannot be seen as the answer to every economic challenge faced by a community or region. However, they do represent a valuable tool that economic development stakeholders should have at their disposal. A cluster approach may be most useful in helping officials and practitioners to see a community’s economy in a new way—not as a collection of individual firms, but as a system in which interventions can assist companies, industries, and the entire community. Cluster-Based Economic Development Strategies, International City/County Management Association, March 29, 2012
Business clusters are the in thing, and the Bay Area has jumped on the bandwagon with two feet. But, when cluster advocates say clusters benefit “the entire community,” are they including those folks in the community’s lower and middle-income brackets who rent their homes? Those community residents might be employed by fast-food restaurant, or might be the people educating your kids in neighborhood schools or caring for your toddlers. Chances are they will never get their hands on IPOs, do not own a home, and never will own a home in the Bay Area. But as prices increase due to the IPO infusion of cash, their rents will go up. And forget about rent control, since everybody pays for that by way of taxes or prices.
Is There a Line of Defense?
The Bay Area has chosen to engage in an endless tug of war between developers and slow-growth advocates, high-income workers and lower-income workers, landlords and renters, YIMBYs and NYMBYs. Meanwhile, housing costs are transforming the Bay Area into a poster child for unaffordability. Maybe it is time for all sectors to give in a little by balancing housing and business spaces in every community.