Analysts Call Housing Development Essential For Next Wave Of Prosperity
An economic downturn that has forced up Bay Area unemployment and office vacancy rates shows little sign of abating. Business leaders, economic development experts and analysts say that righting the greater Bay Area's economic ship will be neither easy nor quick.
In the meantime, some business leaders and analysts say the region must get prepared for the next wave by building more workforce housing and reconsidering the role of the office park.
The problem — clearly seen now — is the region's over-reliance on all things high tech. Many tech sectors are struggling, so the economic downturn has been the worst in Santa Clara County, home to Silicon Valley. During 2002, Santa Clara County lost 34,300 jobs and saw its unemployment rate rise well above the state and national averages to 7.5%, according to the state Employment Development Department. Overall, the county has lost about 100,000 jobs since the dot-com sector started to crash in late 2000.
During the past year, San Francisco lost a greater share of jobs than the San Jose area, but San Francisco's unemployment rate is lower. Job loss, in fact, has been localized during the recession, and parts of the East Bay and North Bay have seen continued, yet slowing, economic growth, according to an analysis by SPHERE Institute Vice President Michael Dardia.
The office vacancy rate is grim in many places, including San Francisco and the South Bay, where the rate remains in the neighborhood of 25%. Some real estate experts say a portion of the space that is leased is discounted or underused.
Things are not likely to turn around until the economic malaise affecting much of the world — especially Japan — lifts because Bay Area manufacturing and sales is tightly tied to the global economy, experts say. A January survey of business executives by the Bay Area Council (a coalition of 275 businesses) detected little optimism. Forty-seven percent of respondents said economic conditions were moderately or substantially worse than six months earlier. And the quarterly poll found optimism regarding the next six months at its lowest level since the poll began in October 2001.
Some economic development proponents are using this period to reassess the big picture.
"You look at the state atmosphere right now and it's not real appealing to economic development," said Sean Randolph, president of the Bay Area Economic Forum. The cost of electricity has settled at a high level and many people believe the power system solutions of 2001 were temporary, he said. Randolph also pointed to the high cost of housing, transportation congestion, rising worker's compensation costs, and a structural state budget problem.
Randolph's organization is finishing a report on international trade that makes clear how reliant the Bay Area is on global commerce. Bay Area Economic Forum is also pursuing a regional platform to improve coordination among security planners and tech companies, Randolph said.
Joint Venture Silicon Valley recently put together a regional economic strategy leadership team "to look at our behaviors and our perceptions," said Marguerite Wilbur, the organization's president and CEO. Joint Venture has already collected the data, so the leadership team should have recommendations by June, she said.
A Joint Venture paper released last year, "Preparing for the Next Silicon Valley," emphasized the need for government, schools and the private sector to be flexible. The next wave of technological innovation could bypass the Silicon Valley in favor of San Diego, Boston, Washington D.C., or another tech hotbed. Or the next wave "could roll over us like the Internet boom," which may have left behind more damage than prosperity in the Bay Area, according to Joint Venture.
"We have to prepare ourselves rather than react to changes in the economy," Wilbur said. "That is not something that most regions do." Preparation should involve education changes such as new college degrees that combine life sciences and computer engineering, better workforce training, construction of more workforce housing, and increased local government flexibility in zoning and providing infrastructure and services.
The next technological wave is unlikely to involve development of large business parks on the cheapest available land, Wilbur said. One large company, whom Wilbur declined to name, recently decided it would rather have employees working in small nodes near their homes in places like Palo Alto and San Francisco, rather than commuting to a large campus in the South Bay. If a dispersed work force is the model for the future, it "has huge implications for land use," she said. Commercial and residential development patterns, and the transportation system — all of which are based on the automobile — would change.
Again and again, business analysts return the economic development discussion to the Bay Area's housing, which remains the nation's most expensive.
"We are always focusing on the issues of economic development and the cost of doing business," Randolph said. "In the Bay Area, a lot of that comes down to housing availability and the huge deficit we've been living with for so long. And it causes many of the transportation problems we have."
For a variety of reasons, developers often must fight to build housing in the Bay Area, said Stephen Levy, executive director of the Center for the Continuing Study of the California Economy.
"I've been arguing that building housing is the region's number one economic development priority," Levy said. Bay Area businesses and public agencies struggle to hire employees because housing is scarce and expensive, said Levy, who also argues for reducing land use regulation and overhauling the government fiscal formula so that property taxes are enough to fund high-quality public services.
Wilbur said jobs and education currently rank higher than housing and transportation on the public's list of concerns. But, she said, "I think housing is just as important now as before. The gap between what you can afford and what is available is still extreme."
There is talk of converting some vacant office buildings into residential or mixed-use buildings. However, the cost of conversions, financing difficulties, and local governments' reluctance to rezone property where they had planned for uses that generate jobs and sales tax appear to be thwarting movement toward office building reuse.
Sean Randolph, Bay Area Economic Forum, (415) 981-7117.
Marguerite Wilbur, Joint Venture Silicon Valley, (408) 271-7213.
Stephen Levy, Center for the Continuing Study of the California Economy, (650) 321-8550.
Joint Ventura Silicon Valley website: www.jointventure.org
Bay Area Council website: www.bayareacouncil.org