Real Estate Denial, San Jose Edition

Silicon Valley is the biggest source of economic hope and optimism in the Bay Area. It’s “where the jobs are” and it’s part of what makes this part of the world special and unique.

As such, it has become our sacred cow. Stock prices only go up, home prices only go up, and everything will be greener, richer, smarter and better. If there was ever a place convinced that it was immune from an economic downturn, it is Silicon Valley.

But, as we’ve said before, nowhere is different.

The New York Times reports Fresh Start for a Rebirth Stalled by a Recession

Once stigmatized as a rough neighborhood, this city’s downtown has turned around in the last decade, when a new opera hall, museums, a hockey arena and a convention center began attracting suburban residents taking advantage of a growing light-rail system.

Residential and commercial construction was poised to follow. But that development momentum stalled in 2008 when the economy receded, leaving the city’s first high-rise buildings with few buyers. At the same time, a proposal to develop north San Jose into a second urban hub ground to a halt. Plans to build high- and midrise housing, shops and hotel rooms next to successful technology enterprises were shelved.

…

With the goal of creating as many as 10,000 apartments, the city began waiving affordable housing requirements in 2004. Developers fell in line to get approval for the first high-rise towers to be built in this sprawling suburban city, the country’s 10th-largest with a population of just under 1 million.

Why would a city where everyone is so rich need affordable housing anyway?

Though builders nationwide began pulling back from condominiums in 2006, some San Jose developers persisted. By 2007, 20 towers were reported to be in various stages of development. But just four projects of about 20 stories each were built — City Heights with 124 units; Axis with 329 units; The 88 with 197 units; and 360 Residences with 213 units, which opened in May. The complexes offer amenities like pools, fitness centers and doormen.

“Unfortunately, they’re coming to market at one of the most miserable times,” said Shiloh Ballard, the director of housing and community development for the Silicon Valley Leadership Group, a consortium of area business executives. “If they had come to market three years ago, all the units would have sold.”

All would have been sold, all would be underwater. Can you imagine the bloodbath if 20 towers were actually built!

As it stands, much of the market envisioned for the condo units — young, well-paid, single technology workers seeking an urban lifestyle who often land in San Francisco — has disappeared. They have either been laid off, suffered salary cuts or, since housing prices have fallen throughout the Bay Area, now can afford San Francisco.

The remaining potential buyers have apparently thought twice about paying as much as $700 a square foot for a high-rise condo in a market where the going rate for low-rise apartments has been at most $425.

But what about the views?

The recession also significantly set back city plans to populate north San Jose — home to more than 1,200 technology companies — with permanent residents in as many as 32,000 new apartments and houses by 2030.

To create this urban hub near a light-rail system that transports passengers to downtown San Jose and other parts of Silicon Valley, construction of housing units would be connected to job growth in the area — which has largely been thwarted by the recession.

About 26.7 million square feet of new industrial space is being planned. Before the recession, condo and rental projects were on the drawing board, some with thousands of units and some in high-rise buildings, including a two-tower complex with 460 units proposed by Barry Swenson Builder. Now, only one project is under way.

The Irvine Company Apartment Communities plans to build Crescent Village, 1,750 rental apartments on nearly 40 acres near the light-rail system in north San Jose. Crescent Village will consist of five four-story “villages” atop underground parking garages.

The development will have amenities like a park, pools, fitness centers and club rooms, said Darin J. Schoolmeester, a principal with MVE & Partners, the architecture firm designing Crescent Village. He said Crescent Village would include retail space, perhaps for small markets, delis, coffee shops or restaurants.

Mr. Schoolmeester said that even though financing for such master-planned developments withered in the recession, the model was still viable.

Viable, except that we don’t need thousands more housing units right now…especially ones likely priced at $400,000 or more. First, we need to absorb all of the existing units available, in foreclosure, and in construction. Then we need to create the thousands of high-paying jobs so enough buyers can afford them.

“When the economy starts to hum again,” he said, “we’ll see a continuation of people really wanting to live in town, close to where everything is, instead of dealing with a commute.”

And, because it’s Silicon Valley, I’m sure the economy is about to start humming again real soon.

This reminds me of one of my all-time favorite youtube videos. (Everyone loves it except for a few of my friends who work at tech start-ups.)