The Bay Area is an expensive place to live. The real estate has increased consistently above the CPI and the wage growth in this area. This makes home affordability in the Silicon Valley a daunting task. It not only affects the professionals working in the high tech industry, but also makes it very hard for the service sector professionals to live in this area. This vicious cycle has
not been addressed properly at all by the local governments. In 2017, Congress passed the Tax Cuts and Jobs Act. I support a number of measures that would help put more money in people’s pocket to spend on housing in the Bay Area. One of them is repealing the $10,000 cap on the state and local tax deduction (SALT) in their federal taxes. The second is to support modifying Prop 13 such that no more than 0.5% of market property value is taxed at the county level, and
the market value assessments are capped at 1% less than the CPI index per year regardless of the ownership transfers. It will open up many more homes for sale and encourage construction of new homes. Third solution is to give a 15% reduction in the federal tax rate break to all employees of a start up in their first 5 years of existence. This will spur innovation and reward the 80-hour/week employees.
Housing in the Valley has been a complexity that is difficult to comprehend and solve. The housing prices have been high since the late seventies, and the wages have not been adequate to afford a reasonable house. Since the early 80’s, when the housing price index in the valley was around 35, it has risen to close to 300 now, a 8.5x increase. Median price of a single family home in the valley today is around $1.2M today. Despite the low interest rate environment household income has to be over $200K to afford this median house. Unfortunately, the median income in the valley is around $130K today, thus creating the affordability gap.
Income, interest rates, supply and demand, all play in the affordability of homes. Interest rates, fortunately are quite low now. Even then, the affordability index shows that only one third of people in the Valley can afford housing.
California has been short of housing supply consistently since the 70’s. Today, we are short of about 3-4M more housing units. Many of the reasons are decades old including zoning regulations, environmental restrictions and targets, high cost of land, construction costs and developer fees, put a severe damper on the housing unit supplies. In the past, section 8 was introduced by the Federal government to subsidize renters. It is limited in its usefulness, and has multiple years of wait period. California recently passed SB 35 (affordable housing) that is supposed to help in construction of more units in cities that do not meet their assessed housing unit needs. However, affordable housing requirements may complicate it going forward.
Supply of the homes or rental units depends on the local zoning and regulations. As job growth puts pressure on housing, cities are very slow to react to the zoning changes. For example, since 2010, 800K jobs have been added in the bay area, and only around 60K new housing became available, thereby resulting in price and rental increases.
Cities and the State need to revise their thinking in a way that solutions implemented are not short term band-aid fixes. Long term planned development of cities is completely missing from the valley. The smart city planning models are where work, live, and play spaces are closer together and meet most of the needs of the employment growth. Corporations need to be part of the smart city planning.
In order to create better affordability and quality of life, I will work with the local cities and corporations to incentivize large planned developments where living, enjoyment, education, and work are within walk able distances. Such planned developments will reduce traffic, provide safe education environment for kids, and can be very energy and carbon efficient. Cities must change their housing planning guidelines in favor of incentives for people to live, work, educate kids, and enjoy within walk able distances. Now with lessons of Covid-19, we realize that we need to build well-lit ventilated homes and work offices. Open outdoors, sunshine, and protected communities will become more important for the health and well being of the community.
Interest rates, Taxes, and Federal programs that ensure mortgages is where the Congress can play a highly creative role to solve Silicon valley housing problems for the long run.
Congress has immense power in terms of setting up of financial instruments via Fannie Mae and other financial institutions. We need to change the rules of mortgage purchases and guarantees. By working closely with mortgage-backed securities industry, risks can be adjusted such that smart city planned developments get favorable terms, therein modifying city level behaviors and regulations. I will propose innovations in the mortgage industry to help the high cost of home purchases as well as rentals.
In Addition, I will support the following:
- Eliminate the SALT deduction limit of $10K to help with the federal taxes.
- Reduce tax rate by 15% for the employees of a new start up for 5 years.
- Modification of Prop 13 to limit property taxes to 0.5% of the market value. The market value re-assessment to be limited to 1% less than CPI yearly increase. The property tax does not change if ownership changes.