As the global epicenter of technology innovation, Silicon Valley creates a massive amount of wealth — but the housing supply, hemmed in by geography and zoning regulations, is incredibly restricted. The resulting housing crunch is so severe that Millennials are hard pressed to live there. The median income for Millennials in the San Jose metropolitan area is the highest of any of the 50 largest metropolitan regions in the country — $53,000. But the median home value of $925,000 requires an income of $133,000 to pay a mortgage (not to mention a 20% down payment). The earnings gap, according to a new housing index published by Bloomberg, is $80,000!
If Millennials are the life-blood of creativity and innovation for metropolitan economies, the cost of housing could be Silicon Valley’s Achilles heel. The housing supply is so out of whack, as it is in neighboring San Francisco, that, as much as Millennials are drawn to the excitement and glamour of working at companies like Apple and Google, they simply can’t afford it unless they’re willing to live five or six to an apartment.
According to Bloomberg, housing is unaffordable for thirteen of the 50 largest U.S. metros. The biggest affordability gaps are on the West Coast, but Boston, Washington and New York are on the list as well. Young people are willing to tolerate sub-par living conditions for a while, especially while they are single. One of my daughters shared a tiny rental apartment with four roommates while living in Jackson, Wyoming, which, due to its awesomeness, has similar affordability issues. But she rented her own place when she moved back to Richmond. And now that she is getting married, she and her fiancé have no trouble affording a comfortable starter home in a nice neighborhood near the University of Richmond. When educated Millennials are ready to get married and start families, the idea of sharing a house with four or five roommates is not a serious option.
At the opposite end of the spectrum are metros like Detroit, Buffalo and Cleveland where housing is easily affordable — but job opportunities for Millennials are scarce. If your goal is to recruit and retain educated Millennials with the hope of stimulating the creative economy, it appears that the sweet spot is the middle of the affordability range in which jobs are available and housing is affordable.
Millennials consider many other factors when choosing where to live, to be sure. Larger metros have appeal because the supply of potential mates is larger. They also look for coolness, hipness and authenticity, indefinable characteristics that are difficult to measure but definitely apply to places like San Francisco, New York, Austin and Portland. But once young people have found their mates, the size of the mating pool is no longer a consideration. And once they have children, hipness no longer looms as large.
Metros like Richmond and Virginia Beach will have difficulty competing with San Francisco and New York in luring single Millennials right out of college. But the comparative advantage shifts dramatically in their favor when Millennials are ready to settle down. In the competition for talent, the best bet for downstate Virginia communities is to target educated Millennials at that life-stage. How to target them is quite another question. It’s a question that Virginians need to give more thought to.
(This article first ran in Bacon’s Rebellion on June 9, 2015)