November 19, 2019 / 10:45 PM / 17 days ago

Breakingviews - Tech cartel would be handy for U.S. housing

A construction worker builds framing at a housing construction project in San Francisco, California June 2, 2015. REUTERS/Robert Galbraith

SAN FRANCISCO (Reuters Breakingviews) - Silicon Valley firms get criticized for being too big. There’s one way they could helpfully throw their weight around more: by teaming up to build homes.

The booming economy around San Francisco has created a crunch in affordable housing. About 700,000 jobs have been created in the Bay region over the last eight years, but over the same period only about 175,000 new housing units have been built. The median home price in San Francisco is about $1 million, and double that in Cupertino, Apple’s hometown. That contributed to a net outflow of nearly 30,000 people from San Francisco in the fourth quarter of 2018, according to real estate brokerage Redfin.

Tech companies helped create this situation – now they’re trying to fix it. Facebook and Alphabet-owned Google have committed $1 billion each. Apple, a relative latecomer, pledged $2.5 billion this month. But they are working separately and their combined resources still put only a small dent in the overall state’s need of $1 trillion, according to a 2016 McKinsey Global Institute study. It also showed California will need 3.5 million new homes by 2025 – a large portion in the Bay.

There’s some duplication of efforts. Facebook and Apple are both targeting housing for teachers. Apple wants to partner with private developers, but Facebook already has such relationships. Pooled resources could bring down the cost of construction, which at an average of $417 per square foot makes San Francisco the world’s most expensive city to build, according to consultant Turner and Townsend.

While there’s legitimate concern about the clout of companies with a combined market capitalization of $2.6 trillion, a troika of Google, Facebook and Apple’s sheer size could also help in another way. They could turn their lobbying heft – and huge vote-wielding workforces – towards challenging outdated and cumbersome zoning laws, which protect current homeowners but frustrate housing reform advocates. Governor Gavin Newsom has said housing is a problem the state can’t fix on its own, and called for tech companies to help.

Of course, teaming up with rivals means each would have to share the credit. That might be the reason it’s not yet happening. But evidence of being able to ease social problems, as well as exacerbate them, is a reward well worth having.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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