Anecdotal evidence coming from Silicon Valley goes like this: A family earning $300,000 a year may not be able to obtain a loan for a house.
Silicon Valley, which is about 40 miles south of San Francisco, is the home of many high-technology companies such as Apple, Facebook, Intel, and Google.
An internet search shows that the Silicon Valley has a population between 3.5 million and 4 million.
Homes in Silicon Valley often cost $2 million or more. A 20 percent down payment on a $2 million homes would be $400,000.
The website, <www.move2siliconvalley.com>, provides information on housing prices in Silicon Valley. According to the website, “Homes in Cupertino start at around $1.8 to $2 million.” The headquarters of Apple is in Cupertino.
The website also gives information on a home in Los Gatos. The home has three bedrooms, three bathrooms, and an area of 2,258 square feet. The price is $2.4 million.
How can housing prices in the San Francisco Bay Area (including Silicon Valley) be lowered?
The California State Legislature is considering laws that will increase the supply of housing. State Senate Bill 827, which may be temporarily dead, mandates that cities must build high-rise, high-density housing within one-quarter mile of a frequently-used bus route or one-half mile of a train station, such as a BART (Bay Area Rapid Transit) station.
Another bill, Senate Bill 828 (SB 828), which has passed the State Senate but not the State Assembly, is requiring California cities to construct more homes for low-income residents. Under a state program called the Regional Housing Needs Allocation (RHNA), cities are told how many RHNA units to build. SB 828 is requiring the RHNA numbers in cities go up by 25 percent. For example, if a city is now required to build 100 RHNA units, the new number will be 125 units.
More housing means more overcrowded schools, more traffic, fewer parking spaces, and less open space.
According to the website, <www.justschools.gseis.ucla.edu> “one in three California students attends an overcrowded school.”
When more housing is built, more transportation projects are also needed.
On June 5, 2018, voters in the nine-county Bay Area approved Regional Measure 3, a $4.5 billion measure for transportation projects. The measure, which required a simple majority to pass, received 54 percent “yes” votes and 46 percent “no” votes.
The basic real-estate problem in the Bay Area is that demand for housing greatly exceeds supply.
Instead of increasing the supply of housing, lawmakers should consider ways to reduce demand.
Vancouver, Canada, where real estate prices have been escalating sharply, has sought to temper housing demand by imposing a 15 percent on sales to foreign homes buyers.
In an article dated March 7, 2018, and posted on <www.calmatters.org>, reporter Matt Levin wrote: “Two years ago, under intense pressure from Vancouver residents, the British Columbia provincial government began mandating that homebuyers disclose citizenship on sales documents. The data revealed that in fact 10 to 15 percent of houses were going to neither Canadian citizens nor permanent residents.”
Levin continued, “So the provincial government slapped a 15 percent tax on all sales to foreign homebuyers. The immediate response was stunning: Within a few months, the price of a single-family property in the greater Vancouver area dropped 20 percent.”
California could also place a special tax on foreign buyers of real estate. According to Levin, “The idea of a foreign buyer tax has been floated in some quarters of California, including Silicon Valley, but has never received significant legislative attention at the state or local level.”
Another type of tax went into effect in Seattle, Washington. On May 14, 2018, Seattle lawmakers settled on an annual $275 per-employee tax (known as a head tax) on large businesses. The tax was repealed on June 12, 2018.
Some cities in Silicon Valley, such as Cupertino, Mountain View, and East Palo Alto, are considering implementing a head tax. San Francisco is also contemplating a head tax.
California has the seventh highest corporate income tax rate in the United States. The rate is 8.84%. A constitutional amendment in the State Assembly would raise the rate to 18.84%.
If taxes on California businesses become too burdensome, some of these businesses will move to other states or other nations.
A poll by the Bay Area Council, showed that 46 percent of Bay Area residents are likely to leave the region in the next few years. In 2017, the figure was 40 percent. In 2016, 34 percent wanted to leave. The poll was released on June 3, 2018.
Instead of California’s mandating the construction of additional housing, the state should consider implementing higher taxes on businesses.
A tax on foreign buyers of California real estate, a head tax on employees of businesses, and a higher state corporate income tax should force businesses — and the jobs associated with these businesses — to leave.
The Bay Area now has seven million people. If 46 percent of Bay Area individuals left, the population would drop to 3.8 million.
If jobs, because of taxation, leave California, then housing prices will drop. Moreover, the need for more transportation projects will vanish.