Thursday, December 13, 2007

How Bay Area Subprime Mortgages Relate to High-Tech Startups

Earlier this week, Tom Campbell, Dean of Berkeley's Haas School of Business, gave a long interview about "the mortgage crisis" on KCBS' in-depth segment [MP3]. At one point, the conversation turns to the general paucity of housing in the Bay Area (relative to demand, anyway), and the notion that landlords may be beneficiaries as folks suddenly discover that (1) they can't afford $975,000 for that 3-bedroom house and (2) it isn't worth $975,000 anymore either.

But aren't these b-school types the ones who are always telling us to "think outside the box"? The best Tom can come up with is a kind of housing trust or co-op, that lets you own, say, 25% of an expensive house, while you still get to live in it (an investor group owns the rest).

That's a really cute way of pumping up housing prices and speculation even further, by letting investors who would never do the real-estate transaction themselves pool their investments and then spread them across a bunch of properties (doesn't this sound a little like the mortgage problem we just saw?), while leaning on loan guarantees to cover their downside.

The cost of housing and difficult commutes are a big brake on the tech industry; they consistently rank at or near the top of Silicon Valley business leaders' concerns about the growth of their companies and the success of the region.

In the positions I've held over the last 4 years or so, I've been responsible for hiring engineers. Not just punch-the-clock engineers, but wicked smart, willing-to-build-it-from-scratch-but-wise-enough-not-to startup-minded engineers. But it is brutally hard. Even with robust salaries, it is difficult to get applicants in the door, let alone hired. And, no, it's not due to a shortage of U.S. geeks. Housing costs and impractical commutes seem to be the primary limit on the realistic pool of applicants.

Over time, if we don't do something about it, we'll only have the old-guard geeks (who bought homes a long time ago or live in rent-controlled places in SF or Berkeley) and immediate college grads (who are up for an adventure and happy to have roommates).

The problem is, when your only tool is sprawl, and you run out of farmland to sprawl on, you either throw in the towel (Silicon Valley) or you sprawl farther away (American Canyon, Fairfield, Tracy, even Monterey). When your only tool for traffic congestion is building more lanes, that's what you try to do, even though latent demand means that more freeway creates more traffic in the long run, not less.

If I'm so clever, what am I suggesting? We need to use a different tool, namely smart growth.

Among other things, we need significantly higher density, infill development, and more mixed-use development (residential, commercial, and light-industrial uses in the same or nearby buildings). This isn't a speculative proposal: where it has happened locally, it has been popular. Look at Santana Row, San Mateo, downtown San Rafael, even South of Market/Mission Bay SF (although arguably the planning there didn't go nearly far enough, leaving too few housing units to make any dent in affordability).

Luckily, the Bay Area does not share America's poorly grounded prejudice against living in towns. So communities like the ones I propose, on the peninsula and in the East Bay (Hayward, anyone?) would likely be embraced. And infill opportunities abound: Every time you see a big-box store in the Bay Area, whether you love them or hate them, imagine a few stories of residences on top and additional businesses lining the enormous "blank" sides of the store at street level.

Will this generate so much housing that no one will be tempted to take on debt at crazy terms they can't afford? Of course not. But if it can help keep that housing-cost-to-salary ratio from growing quite so fast for the folks we want (and need!) to work with, while bringing the ancillary benefits of denser communities, it seems like a no-brainer.

1 comment:

Linda said...

Mortgage crisis is very serious problem. The controversy surrounding subprime lending has expanded as the result of an ongoing lending and credit crisis both in the subprime industry, and in the greater financial markets which began in the United States. This phenomenon has been described as a financial contagion which has led to a restriction on the availability of credit in world financial markets. Hundreds of thousands of borrowers have been forced to default and several major American subprime lenders have filed for bankruptcy. But with interest rates on a large number of subprime mortgages or bad credit mortgages due to adjust upward during the 2008 period, U.S. legislators and the U.S. Treasury Department are taking action. A systematic program to limit or defer interest rate adjustments was implemented to limit the impact.