As real estate boom continues, what impact on the Bay Area economy?
By Jim Emerson
5 July 2016
Photo: Courtesy of creative commons
The boom in home prices that began in 2012 is still going strong, but experts are questioning how long the overheated real estate market with skyrocketing prices and bidding wars among buyers can continue.
The academics and researchers who study the cyclical nature of real estate booms and busts have no doubts that this market frenzy cannot be sustained, but concede that no one can accurately predict when or how the next major market shift will occur.
Meanwhile, the boom continues, making property owners giddy and buyers and renters unsettled.
The latest figures released in June indicate only a slight moderation in home appreciation, following five years of price increases.
Since 2012, Bay Area home prices have increased an average of 72%, based on market research conducted by Paragon Real Estate Group. It cited dwindling affordability as a symptom of an overheating market.
“We started seeing the latest round of price increases beginning in 2012,” said housing policy expert Carol Galante, Professor of Affordable Housing and Urban Policy and faculty director of the Terner Center for Housing Innovation at UC Berkeley. “It’s moderated a tad in San Francisco, which has brought on some more supply of housing; but in the East Bay prices haven’t moderated at all because there’s not much new supply of housing.”
Galante said there are concerns that the current real estate boom risks making the Bay Area’s economy unsustainable. As more people are priced out of the local housing market, they will move further and further afield, or jobs will leave the Bay Area and the region will suffer economically, she said.
There may come a day when major tech employers seeking to attract talent will say enough is enough with housing costs in the Bay Area and decide to relocate elsewhere, potentially changing the economic dynamics of the region from growth to a downward cycle, she said.
There are examples of this happening to a small degree already. Zapier, an apps integration company headquartered in Mountain View, offered its employees up to $10,000 in relocation reimbursements if they moved out of the Bay Area.
Galante doesn’t think, however, there will be a real estate collapse like there was after the dotcom crash of the 1990s and the recession of 2008, with their massive job losses.
There has been some recent slowdown in new tech jobs, but the local tech economy is still thriving, driven by Google and Facebook, she added.
“I can’t say how this boom will end, but I don’t think it will be a total crash like 2008,” said Galante.