(Bloomberg) -- Google pledged $1 billion over the next 10 years to try to address an affordable housing crisis in California’s Bay Area.
The tech giant will re-purpose $750 million of its own land for residential use, allowing the development of at least 15,000 new homes, Chief Executive Officer Sundar Pichai said in a blog post on Tuesday. Another $250 million will go to incentives for developers to build at least 5,000 affordable housing units.
The success of Google and other Silicon Valley technology companies has contributed to massive housing cost increases in the San Francisco Bay Area. The firms employ tens of thousands of high-earners who have bought or rented homes, leaving fewer options for poor and middle-income residents. Meanwhile, the supply of new houses and apartments has not kept up with demand.
“Our goal is to help communities succeed over the long term, and make sure that everyone has access to opportunity, whether or not they work in tech,” Pichai said. He noted that just 3,000 homes were built in the South Bay area last year.
Silicon Valley is the most expensive housing market in the country, with a median existing-home price of $1.2 million. The San Francisco and Oakland metro area is second with a $930,000 median, according to the National Association of Realtors.
Google’s financial commitment is significant, but more companies and organizations will need to pitch in to really change housing affordability in the Bay Area, said Ray Bramson, chief impact officer for homelessness advocacy organization Destination: Home.
In Santa Clara County, which encompasses San Jose, Mountain View and Palo Alto, there is a shortage of more than 35,000 affordable housing units, Bramson said. There will also need to be infrastructure improvements to handle population growth, he added.
“There’s a huge, huge challenge our community is facing,” he said. “It’s going to take a tremendous amount of work.”
Listen to Bloomberg’s Decrypted Podcast on Silicon Valley’s van dwellers.
Google’s effort to build the region’s housing supply should be applauded, said Issi Romem, Zillow’s senior director of housing & urban economics. Still, he said, using company land for housing probably isn’t a scalable solution.
“Nobody knows exactly what number of homes you need to build in the Bay Area to make housing prices grow more slowly or go flat,” Romem said. “But what we do know is that it’s a really large number” and probably “millions of housing units over a couple of decades.”
One challenge for Google will be persuading local towns to support rezoning land for housing. Because of a 1978 measure that limits property-tax increases on homes, municipalities generally get more revenue from commercial development than residential, according to Margaret O’Mara, a University of Washington history professor and author of the forthcoming book, "The Code: Silicon Valley and the Remaking of America."
Google isn’t the first tech giant to throw money at the housing crisis. Microsoft Corp. said in January it would spend $500 million to develop affordable housing and alleviate homelessness in the Seattle area, near its headquarters.
“These are not altruistic, non-profits, they’re for-profit companies," said O’Mara. "They’re putting money into something that they’re going to benefit from not just in terms of the good press.”
The philanthropy started by Facebook Inc.’s Mark Zuckerberg and his wife Priscilla Chan is also backing an effort to address the housing shortage in the San Francisco Bay Area.
(Updates with economist comment in the ninth paragraph.)
--With assistance from Kara Wetzel.
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