Why US tech giants are putting billions into housing

0
Share
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.

SEOUL (Reuters) – Less than a week after Huawei Technologies was blacklisted by the United States, more than a hundred South Korean politicians and business leaders toured the Chinese tech giant’s headquarters and its lavish new campus outside Shenzhen.

Executives from firms such as Samsung Electronics watched demonstrations of high-speed robotics and smart city simulations powered by Huawei’s next-generation 5G network equipment. The event was part of a Seoul-backed forum aimed at building tighter tech links between China and Asia’s fourth-largest economy.

But the gathering was overshadowed by the U.S. decision early this month to ban American tech and telecom firms from doing business with Huawei, and a push to get companies around the world to follow suit.

The campaign against Huawei, and the broader U.S.-China trade war, have landed export-driven South Korea in a familiar bind, caught between its crucial security ally and biggest trading partner.

Key global tech companies are suspending sales of parts and software to the Chinese firm and several mobile carriers are delaying the launch of new Huawei handsets. But in South Korea, business executives and politicians said they see few alternatives to conducting business with China as normal.

For Samsung, South Korea’s national tech champion, any advantages it could gain from Washington’s move against Huawei would be outweighed by the pain of lost business, experts said.

Samsung could increase share at Huawei’s expense in smartphones and telecom network equipment, and its stock has ticked up modestly since the U.S. ban was announced. The broader trade war could also blunt the rise of new Chinese rivals in chips and smartphone screens.

But Huawei is also one the biggest customers for Samsung’s memory chips, and the South Korean firm has multiple factories in China serving a plethora of customers. Samsung Vice Chairman Yoon Boo-keun was among those who took part in the Huawei tour.

“They compete, but they are important partners too,” said Min Byung-doo, a South Korean ruling Democratic Party member of parliament who was part of the tour, referring to Huawei and Samsung. He told Reuters that South Korean companies had “no simple alternative” to maintaining business relationships with Huawei.

Samsung declined to comment.

‘MOMENT OF TRUTH’

South Korean government officials and tech company executives say there is plenty to worry about in the long run. China is South Korea’s largest trading partner, accounting for 26.8% of the country’s exports in 2018, compared with 12% for the United States.

Huawei alone bought $10.7 billion worth of South Korean products last year, accounting for about 17% of the country’s electronics parts exports to China, according to data from the South Korean government and Huawei.

South Korea’s SK Hynix, the world’s No.2 memory chip maker, counts Huawei as its top customer.

(Graphic: Huawei has become one of Korea Inc’s top customers, tmsnrt.rs/2W7oWLY)

Some experts believe South Korea will not be able to walk the line between the two powers amid an intensifying tech trade war.

“South Korea has to face the moment of truth – choosing the United States or China,” said Han Suk-hee, a professor of Chinese studies at Yonsei University and a former South Korean consul general in Shanghai.

“What if the U.S. is not only asking not to use Huawei products but also not to export South Korean semiconductors to China? The government needs to prepare for that worst-case scenario.”

Washington has warned allies that adopting Huawei technology in 5G networks could lead the U.S. to curtail intelligence sharing.

South Korea’s presidential office said it cannot comment on discussions with Washington.

A South Korean government source close to the situation said there are no easy answers.

“Sorry, we are not the United States, and can’t just do the same as what the U.S. is doing to China,” he said when asked whether the country will join the U.S. campaign against Huawei. “We can’t jump to a simple conclusion.”

LG Uplus Corp, the only South Korean telecom firm to use Huawei equipment for its 5G network, declined to comment.

For its part, Huawei said it plans to open a 5G lab in South Korea on Thursday as a sign of its commitment to partnership.

“Huawei has an ‘In Korea, for Korea’s advancement’ philosophy,” Huawei’s head of Asia-Pacific, Tian Feng, was quoted as saying by South Korean officials who took part in the tour.

CHINA’S CLOUT

Memories are still fresh in South Korea of how damaging retaliation by Beijing can be.

Angry over Seoul’s decision to deploy a U.S. THAAD anti-missile defence system in 2016 to counter North Korea, China informally banned group tours to South Korea and suspended construction projects by retail giant Lotte.

Samsung’s smart phone market share in China halved in 2017 from a year earlier, according to Strategy Analytics. Hyundai Motor’s sales plummeted by one-third as a result of the missile dispute.

At some South Korean companies, officials grumble that their government is powerless to counter China and has not done enough in the face of what they see as unfair subsidies and other trade practices.

“We feel as if we are left alone to fight to survive, not being able to get any government support when the Chinese government is all out there to advance their high-tech industries,” an official at a major South Korean display maker said, asking for anonymity due to the sensitivity of the matter.

“Our government was in disarray without any pre-emptive plans in the THAAD situation, while our companies kept bleeding in China,” said the chief executive of a South Korean firm that supplies parts for Huawei smartphones, who also declined to be named.

“This time around, I hope our government can provide a clear vision and protect our companies.”

Vietnam, Taiwan, Bangladesh and South Korea are coming out as victors in the US-China trade war.

Americans are buying less from China. But rather than leaning on US producers, they’re avoiding President Donald Trump’s tariffs by turning to suppliers in other Asian countries.
The trend, which has emerged throughout more than a year of inconclusive trade negotiations between Washington and Beijing, continued through May, according to data released Wednesday by the Census Bureau.
During the first five months of the year, the United States imported 12% fewer goods from China during the same time period a year ago. But imports from Vietnam are up 36%, and they increased 23% from Taiwan, 14% from Bangladesh, and 12% from South Korea.
Why New Balance turned on Trump over China tariffs
Trump’s tariffs have made consumer goods like baseball caps, luggage, bikes and handbags that are manufactured in China more expensive for American importers. The taxes have also hit a variety of machinery and industrial goods, including parts for dishwashers, washing machines, dryers and water filters.
Trump said last week that talks are “back on track” and new tariffs are on hold after meeting with Chinese President Xi Jinping at the G20 conference in Japan.
But American business owners were startled in May when the administration escalated tariffs on $200 billion of goods to 25% from 10%, arguing that China reneged on previous agreements. Trump also threatened to impose new tariffs on the remaining Chinese imports, which would hit smartphones, toys, footwear and fish.
The president has suggested that Beijing will agree to a deal because the tariffs he’s imposed on Chinese goods are driving away business.
“China is getting absolutely decimated by companies that are leaving China, going to other countries, including our own,” he said in an interview with CNBC last month.
But it’s unclear whether companies are permanently shifting production outside of China, or simply rerouting goods for minimal processing before being shipped to the United States. Vietnam’s customs agency said that it would start cracking down on goods of Chinese origin illegally relabeled “Made in Vietnam” by businesses attempting to avoid the US tariffs, according to a report from Reuters.
It’s not always easy to find suppliers outside of China that can manufacture the same good with the same quality and for a cheaper price. It’s a process that could take months, or even years. Instead, an importer may decide to eat the cost, betting that Trump will lift the tariffs sooner rather than later. They can also choose to pass the cost on to consumers for the time being.
Missouri-based Cap America imports a majority of its baseball caps from China and embroiders them in the United States. The company is trying a new supplier in Bangladesh to avoid the tariffs, but those orders will only make up about 20% of total imports this year as they test the quality.
“You can’t just snap your fingers and switch production. It’s a definite process,” said CEO Phil Page.
About 40% of companies surveyed in May by the American Chamber of Commerce and its counterpart in Shanghai said they are considering or have already relocated some manufacturing outside of China because of the tariffs. For those that have moved production, about a quarter shifted to Southeast Asia. Fewer than 6% said they have relocated or are considering relocating to the United States.
While imports from countries outside China have significantly increased this year, some production was already moving outside of China to places with even lower wages long before Trump began imposing tariffs. US imports from countries like Vietnam and South Korea have been steadily increasing over the past decade as those countries have ramped up manufacturing of apparel and electronics, respectively.
Taiwan and South Korea are more focused on high-tech items like semiconductors, but Vietnam and Bangladesh still offer competitive wages — making them attractive places to make consumer items like apparel and shoes.
Correction: The headline has been updated to correctly characterize the places that are mentioned in this article.
Leave a Reply

Your email address will not be published. Required fields are marked *

Socials

November 2019
M T W T F S S
 123
45678910
11121314151617
18192021222324
252627282930