The leveling off of the housing market in the Bay Area this spring might seem to herald a new era of more affordable housing in Silicon Valley.

The reality check on that Pollyanna hope was a report earlier this month by Mercury News Real Estate Writer Sue McAllister: Faced with a sluggish market, developers are building fewer homes than expected this year. That’s true not just in the high-cost Silicon Valley but across California, including the Central Valley, where there are fewer government restrictions on growth.

And if history repeats, builders won’t resume full speed production until demand - which is to say, prices - starts climbing again. So while the economy and the population of Silicon Valley continue to grow, the supply of housing will further shrink in proportion to the need.

The pattern leads to two conclusions:

Production of subsidized housing and other types of government or non-profit housing aid is growing in importance. They are the only reliable ways of increasing the supply of affordable housing and helping first-time buyers get into a home. Businesses and philanthropists need to increase support of groups like the Housing Trust of Santa Clara County and non-profit developers. The state and federal governments need to do more to support housing efforts.

Silicon Valley cities need to lower costs for developers by speeding up permits, making clearer rules and encouraging desirable projects. This may not significantly reduce sales prices, which are determined mainly by what buyers are willing to pay. But it can help increase housing production in good times, a further hedge against the market slumps when building slacks off.

The Bay Area no longer has a franchise on this problem. It’s part of a broad-based shift in our national economy, with local wages in many if not most major metropolitan areas failing to keep up with property costs. Sunday newspapers in Dallas this week proclaimed a crisis in the lack of affordable homes: Yes, that’s Dallas, Texas, where government doesn’t meddle and taxes are low.

To combat the trend, the importance of subsidized housing can’t be overstated.

The array of non-profit builders in the valley and funders like San Jose’s Housing Department will not slow their work because the market is slumping. During the recession of the early 1990s, for-profit builders all but shut down production. The lion’s share of the building permits issued in San Jose for several years were for non-profit builders.

For non-subsidized homes, the market is the main determinant of prices. If a resale home in Evergreen is going for $900,000, with offers coming in above the asking price, a builder of new homes the same size a half-mile away would be crazy to sell them for significantly less than the going rate. That’s simply a fact in a market-based economy.

So this is a call for additional creativity. There is no easy market-based solution to the gap between earning power and real estate prices that is now a national crisis.

Source:

http://www.mercurynews.com/search/ci_6119917