If you didn’t already know California is in a category by itself, a regular parade of news will remind you. Four University of California system campuses made MONEY’s top 10 Best Colleges rankings, for example. One of them — Berkeley — this summer decided that natural gas will no longer be allowed in new buildings, even as the state’s average electricity price is the seventh-highest in the nation.
Cost is another area where the Golden State seems to have its own metrics. Nowhere is that more apparent than residential real estate, where the state’s “Can you believe that?” high costs are remarked on nationwide — including by other states’ economic development departments.
Governor Gavin Newsom has even directed that a new interactive map be developed (it made its debut in August) of excess state-owned parcels that might be conducive to cost-effective housing solutions. And the California Strategic Growth Council (SGC) in June awarded more than $402 million from its Affordable Housing and Sustainable Communities (AHSC) program to 25 new community development projects around the state that aim to develop affordable homes near public transit and create more walkable, bikeable neighborhoods. The AHSC program now has surpassed $1 billion of investment to support more than 100 projects across the state.
The California Department of Housing and Community Development lays out the challenges:
Not enough housing being built: During the last 10 years, housing production averaged fewer than 80,000 new homes each year, and ongoing production continues to fall far below the projected need of 180,000 additional homes annually.
Increased inequality and lack of opportunities: Lack of supply and rising costs are compounding growing inequality and limiting advancement opportunities for younger Californians. Without intervention, much of the new housing growth is expected to be focused in areas where fewer jobs are available to the families that live there.
Too much of people’s incomes going toward rent: The majority of Californian renters — more than 3 million households — pay more than 30% of their income toward rent, and nearly one-third — more than 1.5 million households — pay more than 50% of their income toward rent.
Fewer people becoming homeowners: Overall homeownership rates are at their lowest since the 1940s.
Disproportionate number of Californians experiencing homelessness: California is home to 12% of the nation’s population, but a disproportionate 22% of the nation’s homeless population.
Many people facing multiple, seemingly insurmountable barriers — beyond just cost — in trying to find an affordable place to live: For California’s vulnerable populations, discrimination and inadequate accommodations for people with disabilities are worsening housing cost and affordability challenges.
Google and its parent company Alphabet, after implementing novel solutions such as paying for transit buses, is trying to innovate in the housing category, too. Approximately 23,000 of Google’s nearly 99,000 employees, after all, live in the Bay Area alone, one reason some communities such as Google’s home base of Mountain View have chosen to tax large employers to make up for the imbalance between jobs on one hand and housing and transportation on the other. Measure P, approved by 71% of Mountain View voters in November 2018, charges businesses with more than 50 workers a fee ranging from $75 to $150 per employee, depending on the company’s size, with Google looking to be on the hook for around $3.3 million of the expected $6 million the new tax will raise.
Non-plussed, Google in June re-upped its commitment to the Mountain View Community Shuttle Program with a five-year funding extension from Google. During Phase 1, the free, community shuttle service was fully funded and operated by Google as part of an initiative to provide daytime transit options for Mountain View residents. Launched in January 2015, the shuttle program has provided more than 700,000 local rides as a proof of concept for a local shuttle system to help people get around town and out of their cars. In 2018 alone, more than 200,000 rides on the service were taken, representing a 10% increase in ridership from the previous year. Phase 2 will transition the operations from Google over the next year and allow the City to study the next steps for the program while providing stable and certain funding for the program to continue at its current service levels.
“With this extension, Google will have committed more than $20 million from the program’s launch in 2015 through 2024,” said City Manager Dan Rich. “Our priority is a free, green, accessible service for the Mountain View community, and we’re glad we can help this service continue,” said Google Director of Transportation Brendon Harrington.
But all of that money is going toward transportation. Where is the housing solution?
In July, Google and Australia-based Lendlease announced they have entered into an agreement to undertake the master planning, entitlement and development of three major areas in Mountain View, Sunnyvale and San Jose with up to 15 million sq. ft. (sq. m.) of residential, retail, hospitality and other associated community uses in the new neighborhoods. Google will focus on developing its office space within these mixed communities.
The civic components alone have an estimated end development value of $15 billion, said Lendlease in its announcement.
“Under the terms of the agreement, Google and Lendlease will work together for the next 10 to 15 years to redevelop the company’s landholdings in San Jose, Sunnyvale and Mountain View into vibrant mixed-use communities,” said the Australian company. “Subject to planning approval, development work could commence as early as 2021.”
“This joint agreement between Google and Lendlease will help address the need for new housing in the San Francisco Bay Area,” said Denis Hickey, CEO Americas for Lendlease. “We’re eager to contribute our world-class approach to creating unique urban communities, and we are focused on delivering outstanding places that redefine how people choose to live, work, connect and contribute to creating an active community.”
“Today’s agreement expands on an existing and successful partnership that will help us deliver on two important objectives — our commitment to accelerate the production of residential units in the Bay Area, and our plan to build mixed-use developments,” said David Radcliffe, vice president, Real Estate and Workplace Services, Google, referencing the company’s commitment exactly one month earlier to invest $1 billion (with $250 million tagged for “affordable”) in Bay Area housing. “Lendlease will play a key role in helping deliver at least 15,000 new homes on our land.”
Affordability was on the mind of San Jose Mayor Sam Liccardo when Google announced its billion-dollar plan in June:
“For several months, we have encouraged Google to make a bold commitment to address our region’s affordable housing challenge,” he said. “We look forward to working with Google to ensure today’s announcement manifests into housing that will benefit thousands of San Jose residents struggling under the burden of high rents.”
Engagement and Action
As reported by Site Selection’s Gary Daughters in March, “the elemental lure for Google is San Jose’s effort to re-invent Diridon Station as a bustling, regional transit center,” thanks to the $10 billion Diridon Station Area Plan. Google recently paid $111 million for more than a dozen downtown parcels that would comprise around a fifth of its 50-acre, 8-million-sq.-ft. (743,224 sq. m.) mixed-use plan, and early this year had under its control more than 50 parcels along a half-mile stretch, Daughters reported.
At a Station Area Advisory Group meeting in August, presentations were made about the city’s policy progress in addressing residential displacement, homelessness and gentrification. San Jose Economic Development’s Victor Farlie addressed small business displacement as a result of revitalization around Diridon Station, noting a pilot program focused on the Alum Rock business corridor. And Rosalynn Hughey, Kim Walesh, and Lori Severino of the city presented Google’s conceptual mixed-use framework alongside Google’s Alexa Arena and Laura Crescimano.
Among the slides they showed were lists of quotes from residents about what excites or concerns them the most about Google growing in San Jose. Among the comments:
Speaking on background, a Google spokesperson said the company had received a lot of interest in its $250 million affordable housing investment fund that was part of the $1 billion pledge made in June.
In a June 2019 post, Google CEO Sundar Pichai said, “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.”
Then he laid out the plan:
“First, over the next 10 years, we’ll repurpose at least $750 million of Google’s land, most of which is currently zoned for office or commercial space, as residential housing,” he wrote. “This will enable us to support the development of at least 15,000 new homes at all income levels in the Bay Area, including housing options for middle- and low-income families. (By way of comparison, 3,000 total homes were built in the South Bay in 2018). We hope this plays a role in addressing the chronic shortage of affordable housing options for long-time middle- and low-income residents.
“Second, we’ll establish a $250 million investment fund so that we can provide incentives to enable developers to build at least 5,000 affordable housing units across the market. In addition to the increased supply of affordable housing these investments will help create, we will give $50 million in grants through Google.org to nonprofits focused on the issues of homelessness and displacement. This builds on the $18 million in grants we’ve given to help address homelessness over the last five years …
“Our goal is to get housing construction started immediately, and for homes to be available in the next few years,” Pichai continued. “In Mountain View, we’ve already worked with the city to change zoning in the North Bayshore area to free up land for housing, and we’re currently in productive conversations with Sunnyvale and San Jose.”
The Google spokesperson says the company had been working with Lendlease for around 18 months prior to formalizing the Bay Area agreement, with Lendlease advising on various aspects of real estate strategy, specifically the master planning efforts in Mountain View, Sunnyvale, and San Jose. The two companies have worked together before, with Lendlease serving as Google’s construction partner for the King’s Cross project in London, an 11-story building that is the first wholly owned and designed Google building outside the U.S. It will combine with two other buildings to house around 7,000 Googlers.
Lendlease is active in other California communities as well, most recently executing a 30-year power purchase agreement with Sacramento County Municipal Utility District (SMUD) for Rancho Seco Solar II, their new 160-megawatt solar facility located on the premises of the decommissioned Rancho Seco Nuclear Generation Station site. The project is scheduled to begin construction later in 2019 and is scheduled for completion by the end of 2020.
“This project demonstrates the substantial opportunity for beneficial reuse of existing infrastructure and serves as a template for redeveloping decommissioned assets,” said Mark Rostafin, vice president of Lendlease Energy Development.
‘Race Against Time’
In Sunnyvale, the proposed Google campus project on a 40-acre site on Caribbean Drive will involve two new five-story office buildings totaling more than 1 million sq. ft. designed by Google favorite Bjarke Ingeles Group. The existing 10 parcels of office and manufacturing buildings (710,381 square feet) will be demolished to make way for the project, located in the city’s Moffett Park Specific Plan area.
The project comes along just as the Sunnyvale City Council in August unanimously adopted the Climate Action Playbook, the City’s new plan to reduce greenhouse gas (GHG) emissions that cause climate change. The Playbook sets a target of 56% below 1990 levels by 2030, which is more ambitious than the state’s 40% target. The ultimate target is reducing emissions to 80% below 1990 levels by 2050, considered carbon neutrality.
“The state of California targets are certainly bold, but we knew Sunnyvale had to be bolder by 2030 to achieve carbon neutrality by 2050,” said Mayor Larry Klein. “Climate action is a race against time, and we’ve heard from many in our community who want to get and stay ahead as soon as we can.”
Getting ahead on housing action is at least as urgent a mission. But progress is being made. In July, Google invested the first $50 million tranche of its $250 million affordable housing commitment in Housing Trust Silicon Valley’s TECH fund. But not all affordable housing efforts in the area owe fealty to Google. In August, a grand opening was held for the 135-unit Second Street Studios project in San Jose. Tech CU (Technology Credit Union) participated with Silicon Valley Bank (SVB) to provide funding for First Community Housing to build the project, which marks the first new construction of permanent, supportive housing in San Jose.
“At Tech CU, we’ve always prided ourselves on helping our local community and we know that affordable housing is something that many in the Bay Area struggle with,” said Todd Harris, CEO of Tech CU. “This was the first affordable housing project we helped fund, and we’re proud to have had the opportunity to help the low-income and homeless population living in the San Jose region find homes.
The project has provided nearly 150 chronically homeless and low-income people with a safe, comfortable place to call home.
“Second Street Studios was a challenging project to finance and build, but all of us involved felt the urgency and responsibility to make sure that the project is successful,” said Fiona Hsu, managing director of community development finance at SVB. “Improving the homelessness crisis in Silicon Valley requires a collective response by every stakeholder in this region.”