Housing price increases now outpace the high salaries of tech engineers in San Francisco and even more-so in Los Angeles
Four years ago, we hit a tipping point when for the first time since the 1920’s, population growth in cities outpaced growth outside of cities.
While the tech industry has been a boom for the national economy and jobs since its recovery from the dotcom bubble, it has also been a driver of today’s urban housing crisis.
More than half of venture-capital-financed startups are now based in urban cities.
The growth of unicorns in cities like San Francisco has brought masses of highly paid technology workers that have displaced the middle-and lower-class.
For too long, the technology industry has ignored this byproduct of innovation and economic development. However, as the housing crisis starts to impact the industry directly and workers on high six-figure salaries become unable to afford homes within major tech hubs, technology leaders are looking to find solutions to a problem we now all jointly face.
So, how bad has the affordable housing crisis become within Silicon Valley and Silicon Beach for those even on technology salaries?
- To analyze, Open Listings used our platform to look at median home sales prices near the headquarters (within a 20 minute commute time) of some of the Bay Area and Los Angeles' largest and most well-known technology companies.
- We then utilized public salary data from Paysa to get average salaries for software engineers working for each company at these locations.
- From there, we calculated the percentage of technology workers’ monthly income would be put towards a mortgage for a home nearby.
- We estimated the monthly cost of owning a home by using the mortgage payment for a 30-year year fixed loan with a 4% interest rate.
- We also added property tax to this figure based on the local rate in order to paint a more accurate picture of what a monthly payment would look like.
In addition, given the standard rule for lenders is that your monthly housing payment (principal, interest, property taxes and insurance) should not take up more than 28 percent of your income before taxes, we used this as a barometer for evaluating if tech workers can really afford to own a home within a non-stressful commute distance from the office — on their salaries alone.
Silicon Valley vs. Silicon Beach
How did finding an affordable home near work compare broadly between San Francisco and Los Angeles?
It’s still true that both housing costs and salaries in Silicon Valley are higher than Silicon Beach. The median housing costs near the offices of Apple, Google, Uber and other tech giants in San Francisco was $1,203,750. Meanwhile, the median salary for software engineers at the companies we looked at within the Bay area was $210,500.
Across Los Angeles, the median housing cost near the offices of local technology companies like Snapchat, Tinder and, Hulu was $895,625. The median salary for software engineers in Los Angeles was $157,000.
However, with the mass influx of engineers heading south to Los Angeles over the last several years (in many cases to escape the living cost of Silicon Valley), there are signs that housing costs may be starting to outpace salaries for technology workers in certain LA neighborhoods.
In fact, of the companies we examined, four of the five most unaffordable areas compared to workers' paychecks were within Los Angeles.
With the prospect of not being able to buy, workers will likely end up facing punishingly long commutes to move from renting a place to owning a place.
If this remains the case, Los Angeles could see the same outflux of technology workers that San Francisco is right now.
Which neighborhoods leave engineers spending most of their paycheck on a mortgage?
If you want to work and live near Santa Monica-based Hulu (44%), you'll have to pay the highest percentage of your monthly salariy to own. Located at the epicenter of Silicon Beach, the median price of nearby housing ($1,052,500) resembled San Francisco more than Los Angeles.
While median home sale prices near technology headquarters in San Francisco were all in the seven-figures, Hulu, Snapchat and Riot Games are the only Los Angeles companies we looked at where median sales prices nearby topped a million dollars.
However, Hulu employees aren't alone in feeling the housing affordability crunch in Santa Monica or Sawtelle. While home prices in this area have increased 89% year-over-year, software engineers' salaries go up an average of 5-6% annually. That certainly can’t keep up with the increase in home prices.
West Hollywood-based Tinder (40%) and Playa Vista-based The Honest Company (37%) rounded the list of where tech workers should expect to spend the highest percentage of their paychecks on a monthly mortgage to live nearby work.
Tinder, located on the Sunset Strip, had median home sale prices nearby its office of $941,250. Of course, many of the sales in this area are typically smaller condos, which may not be ideal for settling down with a family, but also likely deflated the overall cost of median sale prices nearby.
Jessica Alba’s The Honest Company, which moved southeast out of the heart of Santa Monica to a 30,000 square foot Playa Vista office in 2015, saw housing prices nearby of $850,000.
Meanwhile, in San Francisco...
With local hiring competition and the need to offset astronomical housing costs, well-paid technology workers are doing slightly better.
Somewhat surprisingly, those needing to spend the most of their paycheck on housing aren’t in the heart of San Francisco, but rather in Cupertino and nearby Apple’s office where home prices have gone up 20% over the last year.
With limited supply in Silicon Valley, prices here are being driven by bidding wars and buyers being increasingly priced out of neighborhoods.
While the price to buy a home nearby Apple ($1,163,750) didn’t meet the home sales price near offices in downtown San Francisco, median software engineer salaries at Apple came in lower than Google, Twitter and Facebook.
Meanwhile, living in a home near Mountain View-based Google would take up 32% of a software engineer's monthly income, while living near Menlo Park-based Facebook would cost workers 29% of their paycheck.
With such high housing prices, both companies have looked to bring more housing inventory on the market themselves. But, things have gotten so bad in Silicon Valley that schools are closing as families can no longer afford to have children within certain school districts.
So, does any engineer stand a chance of owning a home near work?
While technology workers in the Bay Area can expect to pay a pretty consistent percentage (22%-32%) of their monthly salaries to work and live nearby any of the companies they work at, in Los Angeles the range varied wildly at 15%-44%.
This wide salary range reflects that there are still neighborhoods in LA that have yet to be disrupted by the influx of tech companies, workers, and the correlating increase in housing costs.
The best example of that is Hawthorne, home to Elon Musk’s SpaceX, where workers there can enjoy the lowest median home prices ($493,250) near their office of any of the companies that we analyzed. That’s on a software engineer salary that accounts for 15% of a SpaceX engineer's average monthly income.
The next best off are software engineers working within Netflix’s Hollywood office, which is home to 800 employees. Median sale prices nearby are $798,000, which means software engineers with very competitive salaries ($264,000) within the company would be paying 16% of their monthly income on a mortgage for a nearby home.
Rounding out the third most affordable companies to work at and live nearby is ironically, Venice's Snap Inc. Many have blamed Snapchat’s growth in Venice, and its corresponding IPO that minted millionaires within the company, as a major reason Silicon Beach housing has become unaffordable.
The median sale price near Snap’s headquarters is $1,002,125, but the company appears to be offsetting that high price (by Los Angeles standards) with a San Francisco-like average salary of $252,000. That means working there and owning a home nearby would equal up to 21% of a software engineer's salary.
The bad news for those in Silicon Beach is that Snapchat continues to grow and house its 1,500+ employees, meaning more highly paid salary workers purchasing homes across the area, lowering inventory, raising costs and pushing others out of the neighborhood.
Some of those being pushed out of the neighborhood will be technology workers themselves, and they’ll add to Los Angeles being the worst commute in the country. Something needs to change soon, or like its neighbor to the north, Los Angeles could be seeing technology workers jumping to a new town.
Open Listings recently joined leaders from technology companies such as Salesforce, Twitter, Lyft, Yelp and Mozilla in offering support for California Senator Scott Wiener’s proposed bill to create more transit-rich and affordable housing in cities such as San Francisco and Los Angeles.
As we jointly noted in our letter supporting the bill:We hope to grow our businesses in California, but it’s difficult to recruit and retain employees when they could accept jobs in other states and pay a fraction of California’s housing costs. Already, many California-based technology firms have accelerated hiring in other states because housing costs are too high.
Want more information on how to buy a home within your price range in California? Get in touch with us at email@example.com.