“A 10 percent increase in housing costs in a county is associated with a roughly 5 percent increase in housing costs in its neighboring counties.”
–California Legislative Analyst Office
“Historically, Santa Cruz has provided housing base for major job centers located in Silicon Valley. This relationship has been one of the major drivers of housing demand, especially for single family dwellings in the above moderate household income category. Further, jobs in Santa Clara County are significantly higher paying than jobs in Santa Cruz, at approximately $92,000 median income in 2014 versus $66,000 median income in Santa Cruz, and homes in Santa Cruz are less expensive than in Silicon Valley, factors that contribute to upward price pressure on for-sale homes and rental markets in Santa Cruz”.
–The Santa Cruz County 2015 Housing Element
The average home price in Santa Cruz County continues to climb to historical heights. Keeping all else equal, to determine the sustainability of our current average price level we need to examine those factors that are pushing up prices and ask, are they are sustainable in the long run?
Over the past few decades, the Santa Cruz housing market has been closely linked to the Santa Clara Market. Quoted in the beginning of this article, the Santa Cruz County 2015 Housing Element identified the heavily weighted jobs to housing ratio of neighboring Santa Clara County in combination with the wage imbalance between the two areas as one of the largest external contributors to rising housing costs in Santa Cruz County. So, to understand the health and long term future of our local market, we must look over the hill and assess the economy and housing market trends.
A study published by the Silicon Valley Institute for Regional Studies shows that job growth in Silicon Valley has been declining since early 2016.
Additionally, since May of 2017, labor force growth in Silicon Valley has slowed significantly, adding fewer than 1,000 workers over the previous year. Nationally, employers have record-high levels of job openings, and unemployment in this area is the lowest it’s been since the peak dot-com boom. This suggests that job growth has been slowing from a shortage of workers with appropriate skills, in part due to the high cost of housing in Silicon Valley.
Net migration flows for of Santa Clara County have been close to or below -10,000 persons every year since 2011. If the talent leaves Silicon Valley, firms will follow suit. As we discussed in last month’s digest, article, Redfin CEO Glenn Kelman predicts that skyrocketing housing costs in thriving coastal cities will lead to a “mass migration” of companies and talent to other parts of the country. Pandora’s recent decision to shift its business operations from Oakland, CA to Atlanta, GA suggests there is some validity to this prediction. On the other hand, major players like Apple, which just purchased 16.3 acre property in north San Jose, and Google, which is investing in housing locally, appear to be staying put. The following developments may increase the amount of available housing and help job growth to rebound:
- Google and the City of San Jose are working on plans to bring thousands of jobs, housing and retail to the area between downtown and Diridon station
- City of Mountain View is planning to add nearly 10,000 housing units in the North Bayshore area
- Santa Clara County passed Measures A and B for housing assistance and transportation improvements
Will this be enough?
Silicon valley is in a deep housing supply deficit. While government leaders and developers work together to increase the housing stock, large companies and startups may follow workers to other major metropolitan areas throughout the country to improve their bottom line.
Santa Cruz County will likely continue to both benefit and suffer (depending on your perspective) from high housing demand as long as this deficit continues. While the economic growth over the hill may slow due to housing restraints, this area will likely continue to function as a major economic center in this country due to well established presence of Fortune 500 companies like Apple and Google.