Google takes US$1b step to ease housing crisis it fuelled

San Francisco

BACK in 1998, Google paid just US$1,700 a month to rent its first office - half a home, including the garage, in Silicon Valley.

After two decades of extraordinary growth by tech companies like Google, real estate prices in the area have skyrocketed, fuelling a shortage of affordable housing and exacerbating inequality.

A small one-bedroom apartment near the company's current headquarters now costs about US$3,500 a month.

Now Google, saying it wants to be a "good neighbour", has plans to provide some relief. On Tuesday, it pledged to invest US$1 billion in land and money to build homes.

The company plans to repurpose at least US$750 million worth of commercially zoned land it owns over the next 10 years, Google's chief executive officer Sundar Pichai, said. Google would work with local governments to allow developers to lease the land to build homes.

In addition, Google plans to create a US$250 million investment fund to provide incentives for developers to create more affordable homes in the area, Mr Pichai said.

Although the details are not final, Google said the fund might provide loans or make investments in projects that were geared towards building affordable housing. The announcement is the latest attempt by tech industry leaders to tackle a problem they helped create but until recently had left largely unaddressed.

Google, Facebook, Apple and a host of startups have concentrated wealth in and around San Francisco and Seattle, attracting workers to those areas from across the world.

But the housing supply has not kept pace. As a result, buying or renting a home in those regions has become prohibitive for people outside the technology industry.

In January, Microsoft announced that it would allocate US$500 million to help provide affordable housing in the Seattle area.

That same month, a group of Bay Area philanthropists, including Mark Zuckerberg, Facebook's chief executive, also pledged to donate US$500 million to protect and expand affordable housing in the area.

Google's US$1 billion is not a donation, since the company will likely still make money off leases to developers or low-interest loans. Mr Pichai referred to them as a "US$1 billion investment". But Google may make far less money from the investments than if executives put the money in its core business.

The shortage of available land in Silicon Valley has made it difficult to increase the supply of housing. Google estimates the fund and the repurposed land could spur the building of at least 20,000 homes in the Bay Area.

"We hope this plays a role in addressing the chronic shortage of affordable housing options for longtime middle- and low-income residents," Mr Pichai wrote in a blog post.

Google made its announcement a day before the annual shareholder meeting for its parent company, Alphabet. In the past, the company has been criticised at those meetings for not doing enough to ease the housing problems in the area.

Google recently proposed plans to add new offices in Mountain View, where it has its headquarters, and in nearby San Jose.

In those development projects, the company has pushed for a mix of office and retail space along with residential properties, a departure from the sprawling office parks that are common throughout Silicon Valley.

Since 2005, California has added 308 housing units for every 1,000 new residents, about half the level of New York, according to the McKinsey Global Institute. That long-term shortage has only been worsened by the growth of tech: During the past eight years, the Bay Area has added about 676,000 jobs and 176,000 housing units.

The result has been punishing rent increases, rising homelessness and campers parked on Silicon Valley side streets. California now has not only some of the highest wages in the country but also the nation's highest poverty rate once the cost of living is figured in.

Just a few hours before Google's announcement, the National Low Income Housing Coalition put out a report that showed Bay Area counties account for five of the six most expensive places to live in the country.

In Santa Clara County, which includes Mountain View, a worker would have to earn US$54.60 an hour to afford a two-bedroom apartment.

Despite its obvious and long-standing housing shortage, the state has struggled to find a political solution. Gavin Newsom, the new governor, campaigned on an audacious promise to push policies that would lead to the construction of 3.5 million new homes by 2025 - California is on pace to build about 1 million - but nothing that has happened in the Legislature suggests that goal will be even close to met. NYTIMES