Google

Can $1 Billion From Google Really Solve the Housing Crisis in the Bay Area?

The tech giant's plan to add 20,000 homes will require lots of government permission slips and other investors' money.

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Google made a big splash yesterday with its announcement that it would be making major investments in home construction throughout the housing-starved Bay Area.

"Today, Google is one of the Bay Area's largest employers. Across the region, one issue stands out as particularly urgent and complex: housing," wrote Google CEO Sundar Pichai in a Tuesday blog post. "The lack of new supply, combined with the rising cost of living, has resulted in a severe shortage of affordable housing options for long-time middle and low income residents."

Pichai's post says that the tech giant will devote $1 billion in company assets toward the development of housing throughout Silicon Valley, with the goal of building 20,000 new homes.

On the spectrum of socially-conscious investment to gimmicky public relations stunt, Google's $1 billion housing initiative falls somewhere in between. While its goals are bold, they also are dependent on securing government permission slips and a lot more cash from other investors.

The largest part of Google's housing initiative is the repurposing of company land worth $750 million—much of which Pichai says is currently zoned for commercial or office uses—for residential housing. Pichai estimates that this land will support 15,000 new units.

Google is already in the process of securing permission to build 5,760 homes on land it owns in the Silicon Valley city of Mountain View, where it's headquartered.

Converting office or commercial space into residential housing will obviously require the assent of Bay Area local governments and their NIMBY-inclined residents, who've been known to gum up a housing project or two.

Google has told the San Francisco Chronicle that it will lease some of its land to developers who will then build housing on it. That means Google will still be making money off the land, but not as much as if they simply sold it, according to the company.

This housing would not be exclusively reserved for Google employees—hopefully dispensing with some social media fretting that the company is trying to resurrect 19th century-style company towns.

According to the Chronicle, Google will not subsidize construction on its land, meaning whoever decides to build on it will have to raise their own capital.

Google will also establish a $250 million investment fund, which it says will be used to help finance the development of 5,000 units of affordable housing—typically housing units with restricted rents reserved for people earning at or below an area's median income.

That pencils out to a per-unit investment of about $50,000. In 2015, the median cost of building an affordable housing unit in San Francisco was about $400,000, with some costing as much as $700,000. Construction costs have only risen since then.

That means Google will only be supplying a fraction of the capital needed to build these 5,000 units. The rest of the money will have to be pieced together from state and local funding, federal tax credits, and other private investors.

Lastly, Google says that it will provide $50 million in grants to nonprofits in the Bay Area combating homelessness and displacement.

Google is not the first tech company to launch housing financing initiatives. In January, both Microsoft and Facebook announced plans to invest millions in affordable housing development.

Reactions to Google's plans have ranged from enthusiastic praise to cynical eye rolling.

California Governor Gavin Newsom—who recently passed a state budget which included $500 million for affordable housing development—praised the company's corporate responsibility, saying in a statement that "Google recognizes that it has an important role to play in addressing California's cost crisis."

Others were less impressed, with tech publication The Verge running with the headline "Google pledges $1 billion to ease the Silicon Valley housing crisis it helped create."

That latter take is unfair. Silicon Valley's housing crisis is a product of local and state regulations preventing developers from adding enough housing to absorb all the jobs that the area's booming tech sector adds (and continues to add).

Google did not create these restrictive rules, nor can it alone be blamed for the insane housing costs in the area. That said, the company can hardly promise that its housing initiative will create 20,000 units so long as many of these restrictive regulations remain in place.

Nevertheless, the company throwing its weight behind an effort to build more housing will hopefully encourage local governments to let that development happen.

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  1. $1 billion divided by 20,000 = $50,000 per home???

    1. My first thought too. TFA explains it’s gimmicky seed money and land owned by Google.

      And it does nothing to reduce the bureaucratic stranglehold. Nothing will change. Politicians will extort other tech companies.

    2. But $50K will likely get a google employee a parking space for 1-2 years on which he can park the camper in which he is currently residing.

  2. I’m sure they have good intentions.

    1. And that’s really all you need to be a saint these days.

  3. In an unrelated item, Google investors sued the Board of Directors.

  4. All that’s needed is to get government out of the way.

  5. “”Google has told the San Francisco Chronicle that it will lease some of its land to developers who will then build housing on it. That means Google will still be making money off the land, but not as much as if they simply sold it, according to the company.””

    How long is the term of the lease and for how much? I think they stand to make much more on leasing than selling.

    1. I think they stand to make much more on leasing than selling.

      ^ This. They create the impression of “doing something” about the housing crises that the City of Mountain View openly blames them for, while not actually taking any risk.

      “Oh – the permit didn’t go through on that development? That’s too bad. Your lease payment is due, by they way.”

  6. Why not a company town? Better yet a company skyscraper they can stuff with employees and free up housing for others.

    1. Why not a company town?

      Because 6-figure salaried tech employees would look stupid singing Tennessee Ernie Ford songs.

      16 Tons

      1. I coded 16 lines, and what did I get?

        Another day older and deeper in debt!

        St. Peter don’t you call me cuz I can’t goooooo

        I owe my soul to Google

        🙂

  7. Increased supply may lower the insane values of existing homes nearby. So I’m sure those homeowners will whip out the NIMBY opposition.

  8. I don’t see a housing crisis. Real estate in the Bay Area is too expensive. You don’t like it? Don’t move there and/or don’t set up your business there. It’s the market reaching equilibrium.

    Google adding another $1b to the pot is likely to make housing more expensive, not less expensive.

    1. But it is dude.

      There is ZERO reason for the problems there, or where I live in Seattle.

      It is a crisis manufactured by bad zoning and other construction related rules.

      The thing about the current mess is that it’s not like it’s just pricing out burger flippers… If you make 6 figures, multiple times the national average… You literally still can’t afford to buy a 500 square foot studio condo.

      That is SUPER out of whack. And as I said it doesn’t have to be this way.

  9. All that really needs to happen is zoning changes.

    Zone every single family lot to contain up to a 4 plex or whatever, including townhouses.

    Any street with more than 2 lanes (aka not a straight up side street) allow up to maybe 4-5 stories.

    Those 2 changes alone would solve the housing crisis.

    Obviously there are lots of other permitting problems, and other nonsense… But those alone would take so much of the edge off it would probably be good enough to make things reasonable.

  10. they could just open offices in other cities and move workers to those locations. wouldn’t that work better?

    1. YUP.

      This too. Tech hubs have all been ruined by an excess concentration of employment. If these idiot tech companies had opened up Chicago offices, Atlanta offices, Dallas offices, etc etc etc as they grew insanely huge, their employees would actually still have a decent standard of living.

      This is something I’ve been griping about for years. Nobody is saying it would make sense to open an office in small town Kansas… But why they couldn’t open a campus in Chicago? Their excuses don’t hold water. It’s not hard to convince douchey trendy people to live in the 3rd largest metro in the US. You think programmers wouldn’t want to live in Miami vs Seattle? Puh-leeze.

      If they did this alone it would single handedly save the tech centers. Other major cities are having similar, but less severe, issues because of Fed policy and zoning still though.

  11. Come on guys, let’s still see the silver lining of such an initiative. It’s better than doing nothing.

    Speaking of houses, I’m also curious about how Google will tackle the upcominghome automation revolution…it seems that they’ve been very “hungry” for the housing industry.

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