The Mercury News reported on a study by Clever Real Estate that home prices have increased 4 times more than incomes since 1960. Rising housing costs continue to outstrip real wage growth, making it impossibly difficult for individuals and families to own their own property. This is particularly true in the Bay Area, in areas like San Jose, San Francisco, and Oakland where it is common for real estate to cost 9 times more than household annual income. No other region in the US has a higher ratio for property prices: annual household income. This begs the question: why are property prices in the Bay Area so expensive?
To answer this, Bloomberg writers Christopher Cannon and Noah Buhayar penned an op-ed which detailed the ‘cost-burdened’ households across the country, with California being the most cost-burdened state of all 50 states. According to the comprehensive study, the median home price in California is $600,000 +, double the national average. The 5 most expensive residential markets in the US include 4 California-based regions: San Diego, Orange County, San Francisco, and Silicon Valley. Such is the severity of the housing crisis in the Golden State that major tech companies in Google, Apple, and Facebook have pledged to invest billions of dollars to resolve the housing crisis.
Research firm, McKinsey & Co estimates that 3.5 million+ homes are required by 2025 to meet current demand. The governor of California, Gavin Newsom has tasked his administration with this ambitious agenda, although many are skeptical that anything close to that can be achieved in a state laden with bureaucratic red tape, special interests, and an existing infrastructure that benefits homeowners with Proposition 13 (an entrenched law approved in 1978 that restricts property-tax increases to a maximum of 2% per annum based on the purchase price of the home). Proposition 13 means that homeowners who bought their properties years ago when the prices are affordable pay tax on those prices, not the current valuation. This keeps the rich rich, and makes it more unaffordable for new homeowners.
Challenges for Bay Area Housing
As a result, many cities in and around the Bay Area are pushing commercial real estate development over residential real estate development to generate income through substantial fees on licensing, construction and the like. The problem is compounded by a booming Silicon Valley tech sector which has added hundreds of thousands of new jobs in the 10 years since the global financial crisis.
Unfortunately, inadequate housing means that newly employed workers are struggling to find accommodation. The situation is particularly bad in San Mateo, Napa, Sonoma, Solano, and Alameda. San Mateo is among the worst, and its home to major tech companies Apple Inc, Google, and Facebook. Most property developers in and around the Bay Area are more interested in pushing development of apartment complexes and housing for high-income earners than they are in catering to middle-income earners.
However, Danny Haber of oWOW is bucking the trend with his innovative solutions to the Bay Area property dilemma. By using affordable and adaptable units and a flexible wall system (Magic Walls), oWOW is able to transform single bedroom apartments into multi-bedroom/bathroom units with luxury amenities and facilities for tenants. Multiple developments have been completed, including 674 23rd Street in Oakland where 24 completed units were rented out within weeks. Other big projects in his portfolio include 316 12 Street, 960 Howard Street, and 1919 Market Street. oWOW is a vertically integrated company which adopts a hands-on approach to design and development of luxury living. That Haber is able to do all of this below-market price is a testament to the efficacy of these repeatable designs which are customized off-site to expedite construction and cut costs.
By employing this technique, oWOW has successfully reduced the time to market for new home construction, and delivered high-quality homes at affordable prices. Dubbed ‘Housing Redefined’, oWOW’s work is already paying dividends, gaining the attention of people like Elaine Brown formerly of the Black Panther Party, and the former vice mayor of Oakland, Annie Campbell Washington. Many more projects are in the pipeline, and prices are slowly starting to stabilize.