State of Silicon Valley Real Estate
Today's (May 1,
2007) San Jose Mercury had five (5!) housing related articles that
tells a complete story of the state of Bay Area real estate.
1)
Everybody wants to live in the economic engine called Silicon
Valley
San Jose is one of the
fastest growing cities in California... housing
is scarce and that contributes to housing prices remaining stable... and
expensive.
2) They're still standing in line buying real estate
sight unseen
This demand for housing contributed to
almost 100 prospective buyers placing deposits (~40% pre-sold) for a luxury condo development in downtown San
Jose that won't open until 2009, exceeding developer expectations. With all the
withering housing doom news, who would place this bet
sight unseen? Apparently lots.
San Francisco is also undergoing high rise transformation south of
Downtown. I've always thought that Bay Area cities suddenly shifted to high rise
housing due to limited land space and the boom in real estate development
associated with the landrush of 2000-2005. The Mercury article explains that in
2003, a new state law allowed pre-selling of condo units... that gave developers
more assurance with their investors:
'High-rise housing is on a roll across California because of the removal of one significant barrier by the state, and another - at least temporarily - by the city. Mesa, for example, is the first developer in San Jose to take advantage of a new state law, called Assembly Bill 728, that allows developers to pre-sell units up to three years before a project is complete. Before that, developers in California could only sell units from six months to a year before a project was finished - a law meant to protect consumers from buying a unit sight unseen. But state officials, eager to encourage high-density housing development near transit, shopping and jobs, voted in 2003 to lift the ban and allow pre-sale of units starting last summer. And to persuade developers to build high-density residences downtown, San Jose in 2004 gave them a break by lifting the mandatory affordable housing component imposed on projects in the downtown core.'
3) The lower income
families are being pushed out - and it always seems no one cares because it's
about "upgrading the neighborhood"
Tony San Jose suburb Saratoga passed
a controversial townhouse project
that will tear down a 1962 apartment complex of lower income renters. Note that
one more incentive San Jose gave to developers in the paragraph above is lifting
the mandatory affordable housing component of the project. Yes, there is a real
income threshold to living in the Bay Area that didn't seem to exist prominently
even ten years ago. It seems unfair, but cities like New York Manhattan and
Paris have always had these "income barriers".
4) Housing takes a
back seat to industry
San Jose still has an undeveloped industrial zone in its
Evergreen district that homeowners want to develop into 4,700 new homes. The
Mayor's statement says it all:
"I can't support the industrial conversion out there," said Mayor Chuck Reed. "If we lose the industrial, we have lost the job capacity."
5) Housing takes a back seat to nature, but not
for the lack of trying by developers
Activists are fighting over
a scenic bayfront
1,433 acre industrial property in Redwood City
owned by Cargill Salt as it phases out its plant. However, Cargill's real estate
development arm has been on "a massive public relations campaign to win support
for a new `Foster City' on our
waterfront."
It's hard to hear about people being dislocated. I was dislocated once in my life, and the "makret rate" housing we were offered to move back into out rehabbed building was more than anyone of could afford.
In a truly transparent situation, everyone would have their housing needs known and put on the same priority list as developers.
Everybody needs a roof over their head.
Reply to this
(Smart Growth) This is a hot topic for the industry and is both the solution and problem for the parties involved. It concerns neighborhoods from the smallest towns to the world’s largest cities. Buyers should always review the lot zoning rules that regulate the kinds of activities and densities, which will be acceptable on a particular parcel of land. Homebuyers should be aware of what can be built next door. Moreover the multi-unit buildings built most often have limited space. The new family or owner that moves into the townhouse or condo might discover in a short time that "we found affordability but need more space." In turn, selling the home and not becoming a long-term resident of the community.
In parallel, some developers have switched from building, commute heavy - residential subdivisions in far out and rural areas. Aiming more towards parcels of land closer to suburbs with densely populated communities. This way the builder can expect a faster sale and lower the cost cycle to carry the land acquired.
Reply to this
Great synopsis. Regarding #1, I write about 4 ways the Silicon Valley market has corrected in my new book, and none include pricing. As you can see from the policies Pat outlines in the articles above, there are government influences that help keep housing prices high.
Reply to this