Silicon Valley firms are trying to create lots of highly paid tech jobs. But they can’t hire the people they need. Given the dismal nationwide unemployment, why don’t tech workers stream into the Bay Area to take these jobs? Part of the answer is the area’s notorious “no building here” housing policies. When wages are up 5% but rents are up 10% what is your bottom line real income?
THE San Francisco Bay area is undergoing one of its periodic tech booms on the back of the flourishing of social networking firms. That boom, the Wall Street Journal tells us, is very good for local tech workers:
Tech-jobs website operator Dice Holdings Inc. said salaries for software and other engineering professionals in California’s Silicon Valley rose 5.2% to an average $104,195 last year, outstripping the average 2% increase, to $81,327, in tech-workers’ salaries nationwide.
(…)
If tech-jobs postings aren’t rising as much elsewhere, then why aren’t tech workers moving to Silicon Valley in droves, boosting employment and slowing the rate of tech-worker wage growth? Some surely are, but the labour market obviously isn’t clearing at current wages.
My own hypothesis, which I’ve detailed elsewhere, is that the Bay area’s tight housing market means that booms quickly translate into rising housing costs, which hold down real wage gains. In the late 1990s, home prices in the area rose faster than wages, leading to a net outflow of households from the Bay area to other parts of the country. (…)
Based on the data points in these stories, then, we have a rise in tech salaries in 2011 of 5.2% versus a rise in Silicon Valley rents of north of 10%. To the extent that falling real wages are discouraging people from moving to Silicon Valley to take advantage of the boom, the country is losing out on employment opportunities, a potential increase in incomes, and new business formation. That’s pretty disappointing. And one then has to ask why the area’s housing market is so tight. Historically, the answer has been slow growth in housing supply, which is itself a reflection of the development priorities of the local residents. Through November of last year, the San Jose metropolitan area had approved just 2,400 new housing units for all of 2011, with an additional 5,400 approved in the San Francisco-Oakland metro area. To put that into context, Fargo, North Dakota approved over 1,400 units over that period; Detroit approved over 3,000 units; Las Vegas approved over 4,600 units, and Houston approved over 28,000 new housing units in that time.
The big story of the American economy remains the macro. But the micro matters, and this is one case where it may matter a lot.
[From Hot times in Silicon Valley]
The obvious solution is for firms to move to cities like Dallas or Houston with good housing policies (and low house prices). But that is really hard because the Silicon Valley ecosystem is truly unique in the world — no other location supports new ventures as effectively.
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