Why US tech giants are putting billions into housing

Teacher Leon Sultan
High housing costs are hurting San Franciscans like Leon Sultan

History teacher Leon Sultan was raised in a San Francisco that working class families could call home. That place has, for the most part, vanished.

The city is now the centre of America’s thriving tech industry, with some of the highest housing costs in the US. Homeownership is in retreat and homelessness is surging, alongside newly-minted fortunes.

Mr Sultan currently lives in a rent-stabilised one bedroom apartment with his wife, who also works in education, and his four-year-old son. When they move to a bigger place in a few weeks, their rent will almost double.

“When I was born in the city in 1978, a two-income earning family could buy a home,” he says. “At this point, the only way to buy a home, if you’re a normal person… is to have some sort of edge.”

“I feel lucky that I haven’t been displaced yet.”

‘Unsustainable’ course

Mr Sultan, and many others, blame the changes on the Bay Area’s tech boom, which has created vast wealth divides.

The growing backlash has played out in fights over new taxes targeting tech  and protests against the commuter buses that ferry workers south from San Francisco to Silicon Valley, where many tech giants have their headquarters.

For years, the tech giants have faced down their critics unabashed. But now there are signs of change.

In June, Google said it would invest $1bn in housing and Facebook has also pledged $1bn. Apple upped the ante this month, saying it would devote $2.5bn to the issue.

“We know the course we are on is unsustainable,” Apple boss Tim Cook said as he revealed his firm’s plans.

Those moves followed a flurry of smaller donations and activity from firms such as Cisco and Microsoft, which said it would invest $500m in housing in its home state of Washington.

Apple boss Tim Cook in front of a rendering of the company's campusApple’s growth has created tension over rising housing costs

The commitments represent a “kind of acknowledgement from the tech industry that yes, they’re playing a role in this housing affordability crisis,” says Jeffrey Buchanan from Silicon Valley Rising, which has pressed the tech giants on the issue for years.

“I’m hopeful that it is a change in mindset in the industry… the old way doesn’t work.”

Soaring prices

As the tech industry has boomed, home prices and asking rents in the Bay Area have roughly doubled over the past decade, becoming by many counts the highest in the US.

Last month, the San Francisco Association of Realtors said the median home price in San Francisco had hit $1.4m. The average asking rent exceeded $3,200 per month, according to research firm Moody’s Analytics-Reis.

Wages in the area have increased as well, but not as fast as housing costs.

Painted Ladies in Alamo Square, Victorian-style houses in the residential area of San Francisco with downtown in the background,House prices in San Francisco have soared

A family needs to earn $126,800 a year to rent a typical two-bedroom property in San Francisco without spending more than 30% of their income – the share typically considered affordable. In 2017, about 40% of Bay Area renters spent more.

For Mr Sultan, homeownership is out of the question, but he says his family is lucky. There’s a woman on his street living in her car.

“I’m not feeling sorry for myself,” he says. “There are a lot of folks in this city who are struggling way harder than we are.”

The high costs are forcing companies to pay more and work harder to find staff, one reason the tech firms have taken an interest.

For the most part, their pledges aren’t philanthropy.

RVs line Bay Road in East Palo Alto, CaliforniaMore people are now living in Recreational Vehicles (RVs)

Apple is lending the state up to $1bn to help finance affordable housing projects and providing $1bn to California’s first-time homebuyer fund.

Google and Facebook also plan to invest hundreds of millions in new housing. Land owned by the tech companies that will be made available for housing construction accounts for another major part of the commitments – a full $750m worth in Google’s case.

Such large promises are “unprecedented”, but a lack of detail makes them hard to evaluate, says Carol Galante, director of the Terner Center for Housing Innovation at the University of California, Berkeley.

“It’s in their self-interest but it’s also obviously in the community’s interest.”

‘A drop in the bucket’

Facebook and Google have each said their plans should produce about 20,000 new housing units, some of which will be offered at below market rates. Apple has not provided an estimate for its total commitment, but expects to build about 3,600 new affordable units on its land.

But California State Senator Scott Wiener, whose district includes San Francisco, says the plans represent “a drop in the bucket” compared to the money and policy changes needed.

“I’m glad that Apple, Facebook, Google are doing this, but I think we also have to be crystal clear that this is not going to solve the problem.”

Homelessness has surged in San FranciscoHomelessness has surged in San Francisco

Between 2012 and 2017, San Francisco added fewer than 21,000 new housing units, while the population grew by more than 58,000 and the number of jobs jumped by 130,000.

Senator Wiener blames policies that hamper development – like rules that limit the height of buildings – for much of the growing gap between supply and demand.

“The problem is not that we have job growth,” he says. “The problem is we didn’t plan for it.”

‘Chipping around the edges’

But Peter Cohen, from the Council of Community Housing Organisations, says it’s “simplistic” to rely on increased supply to solve the crisis.

New construction is often designed for the tech industry’s upper crust, even though many of the new jobs are lower-wage ones such as cooks and drivers, he says.

He says the tech industry’s announcements seem in part like a “branding” effort to pre-empt new policies, such as higher taxes.

“We’ve got to have stable and significant sources of funding,” he says. “Otherwise we’re just chipping around the edges.”

Apple has unveiled plans for a new campus in Austin, TexasApple has unveiled plans for a new campus in Austin, Texas

Mr Sultan, the teacher, says he welcomes the plans for more housing – especially if it’s close to company campuses. Expansion in other regions such as Texas – where Apple has announced a new base – make him even more excited.

“The big issue for me is, why does the tech industry have to be housed in San Francisco,” he says. “Why can’t they disperse throughout the country?”

But the broad trends seen in his home city – rising housing costs, slow construction, and declining homeownership, especially among younger families – are happening across the US, especially in areas where tech companies are expanding.

And as people and companies leave the Bay Area, they add to housing strains in suburbs and other cities, pushing the poorest further away from the jobs they need.

The Ndigbo Unity Forum (NUF), a pan-Igbo political and socio-cultural group, has called for the establishment of Igbo radio to cater for the high number of migrant Igbo traders in all parts of the country.

The President of NUF, Mr Augustine Chukwudum, made the call in a statement in Enugu on Tuesday.

According to Chukwudum, this is because millions of Igbos are living in all parts of the country even in the most remote villages, Igbos are living there.

“That is why it is very important that the Federal Government must set up Igbo radio.

“It will go a long way in uniting this country as well as increasing the education and awareness levels of these traders because Igbo’s are progressive in nature.

“We know very well that anywhere Igbo’s go they help in developing the area without government’s assistance,’’ he said.

Chukwudum noted that some groups had been making erroneous statements concerning radio stations meant to promote education and enlightenment in indigenous languages.

He added that such statements were very unfair.


Apple boss Tim Cook

Apple’s business is being tested by ongoing weakening of its iPhone sales.

In a presentation after the firm released its earnings, Apple boss Tim Cook hastened to reassure investors that the declines in iPhone sales are slowing, thanks to the popularity of the firm’s latest model, the iPhone 11.

“It’s early but the trends look very good,” he said. “We are bullish.”

Mr Cook added that the firm’s other businesses were healthy – sales of wearables, such as earphones and watches, surged by more than 50%, while services revenue, which includes Apple Pay and the app store, jumped 18% year-on-year.

That lifted quarterly revenue to $64bn (£49.6bn), up 2% year-on-year.

Mr Cook has been working to make Apple’s business less reliant on its phones, with new subscription services for news and television, among other offerings, but iPhones still account for a majority of sales.

Mr Cook said his optimism about the iPhone 11’s appeal is reflected in Apple’s relatively bright forecast for the upcoming quarter, which includes the festive season – typically a time that sees many hardware purchases.

The firm said it expected revenue growth in the quarter of as much as 6%, above analysts’ expectations.

Daniel Ives, analyst at Wedbush Securities, said Apple also impressed investors with the resilience of its performance in its Greater China region, which accounts for nearly 20% of its business. Sales there declined less than 3%.

On a call with investors, Mr Cook predicted additional growth in the region and expressed confidence that the US and China would reach an agreement that would avoid additional tariffs.

“The tone, I think, has changed significantly,” he said.

Apple shares gained almost 2% in after-hours trade.

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November 2019