Despite a sizzling economy and an influx of wealth, Silicon Valley remains a bastion of inequality, with more residents now struggling to afford the growing costs of housing, child care and transportation, according to a newly released snapshot of the regional economy.
The 2019 Silicon Valley Index, which was released this week by Joint Venture Silicon Valley, paints a troubling picture of a region where home prices continue to skyrocket, where tech giants are voraciously gobbling up startups and where more people are leaving than coming in.
These trends are casting a shadow over the region's continuous economic expansion, with $50 billion in venture capital flowing to area companies and average annual earnings reaching $140,000, more than double the national average.
In his introduction of the annual report, Joint Venture President and CEO Russell Hancock called this year's report a "Rorschach test," with plenty to both cheer and worry about. Hancock noted that some of the challenges, including transportation's woes, sky-high housing costs, and a "yawning income divide," remain troubling but are, in a sense, "old news."
More disquieting, he wrote, are indicators that the region's "fundamentals" — which have driven the area's economic vitality — could be changing.
Among the factors, he wrote, large companies are "acquiring smaller ones at a pace we've never seen, changing the messy way innovation has typically happened here, perhaps even stifling it."
"Fewer startups are getting their seed funding," Hancock wrote. "Our high costs (including salaries) are causing innovative companies to look elsewhere."
For the third year in a row, Silicon Valley has seen more people move out than move in, the report states. Between July 2017 and July 2018, Santa Clara County had a net "out migration" of domestic residents of about 15,000, trailing only Los Angeles and Orange counties. Strikingly, foreign immigrants are also leaving in greater numbers than coming in. Between July 2015 and July 2018, the region gained 61,977 foreign immigrants but lost 64,318 to other parts of California and the United States.
"The influx of foreign immigrants into the region is more than fully offset by the number of Silicon Valley residents moving to other parts of the state and nation; those who choose to stay within California are heading to regions such as the Sacramento and Stockton/Tracy areas where housing costs are significant lower," the report states.
The report also takes note of the region's slowing population growth, which is due primarily to the region's slow and declining birth rate.
At the same time, Silicon Valley remains a diverse region. The report showed that in 2017, Asian residents made up 34 percent of the population, marking the first time that they have represented the largest share of the region's population (in 2007 they accounted for 28 percent of the population). The percentage of white residents has decreased from 40.4 percent in 2007 to 33.5 percent in 2017, the report states.
The report also underscores the region's failures, despite recent statewide and local efforts, to increase residential development and lower housing costs. Median home prices in Silicon Valley skyrocketed in 2018, going up by a whopping 21 percent and reaching $1.18 million, the report states. And while rental rates in the San Francisco and San Jose metro areas remained steady in 2018, they were significantly higher than in any other metro area in the nation (in these two areas, rental rates are $3.42 and $3.20 per square foot, respectively; New York is a distant third at $2.67 per square foot).
Housing supply has not come anywhere close to keeping up with demand: While the region has produced close to 18,000 new units over the past two years, the new projects have not come close to making up for insufficient building over the prior decade, according to the report. The Index estimates that between 2007 and 2016, Silicon Valley created a housing shortage of about 38,000 units, which would be needed to accommodate the region's growing population.
Furthermore, new buildings are generally priced for the wealthy. Only 8 percent of newly approved residential units in Silicon Valley are affordable to residents who earn less than 80 percent of the area median income. For most potential first-time homebuyers, local prices remain far out of reach. The report shows that only 22 percent of potential-first-time homebuyers in San Mateo County — and 30 percent in Santa Clara County — can afford a median-priced home.
The lack of affordable housing, the report notes, "results in longer commutes, diminished productivity, curtailment of family time, and increased traffic congestion."
"It also restricts the ability of crucial service providers — such as teachers, registered nurses, and police officers — to live near the communities they work," the report states. "Additionally, high housing costs can limit families' ability to pay for basic needs, such as food, health care, transportation, child care and clothing. They can push residents to live with one another for economic reasons and can increase homelessness."
Despite a recent push by traditionally growth-averse cities like Palo Alto to encourage more housing, the pace of construction remains sluggish. The number of residential units that were permitted in Silicon Valley in 2018 — 8,400 — was actually lower than in 2017, when more than 9,000 units received the green light.
The report underscores the region's growing income gap, with the number of high-income households (earning $150,000 or more) in Silicon Valley and San Francisco rising by 35 percent in the past four years and 2 percent of households claiming 27 percent of the wealth. Furthermore, more than a quarter of Silicon Valley households have household incomes above $200,000, compared to 11 percent statewide and 7 percent nationally.
But for those at the lower end of the income scale, affording a living has become considerably more difficult. One of the more eye-popping statistics in the new report is the rising cost of child care, which has gone up by 52 percent since 2012 and now stands at about $20,900 annually for infants. The cost of transportation needs for a family of four has gone up by 18 percent since 2014 and is now about $6,300.
The report points to income disparities that persist between "residents of various races and ethnicities, and between men and women at the same level of educational attainment." The tech industry continues to be dominated by men. Only 18 percent of highly educated women between the ages of 24 and 44 worked in technical occupations in 2017, compared to 43 percent of their male counterparts.
The report also showed that women made up just 28 percent of the workforce at Silicon Valley's largest tech companies in 2017, and a mere 19 percent of technical roles and leadership positions.
One finding that is unlikely to surprise readers is the growing commute times. Even though the average number of miles driven by Silicon Valley residents has declined for three consecutive years (reaching 22 miles in 2017), solo commuting remains the most popular option — one chosen by 72 percent of Silicon Valley workers (down from 75 percent a decade ago). The report notes that the average commute time has gone up by 20 percent over the past decade, adding an additional 43 hours of driving time per commuter annually. In 2017, 6.5 percent of employees spent more than three hours on their daily work commutes.
Likely driven by traffic congestion, the share of commuters taking public transportation rose, from 4.9 percent in 2011 to 6.5 percent in 2016. Ridership on Caltrain, a popular commute option on the Peninsula, rose between 2010 and 2018 by 45 percent.
The cost of transportation needs in Silicon Valley went up by 4 percent over the past four years, the report found, even as it decreased statewide by 12 percent over the same period.
"Changing transportation costs affect our residents' ability to get around and still afford their other basic needs," the report states. "And the amount of time wasted due to long commutes and traffic delays affects the everyday lives of our residents — taking time away from work, participating in the community, or being with family and friends."
View multiple charts illustrating the report's findings here.