Sign up for a daily newsletter defining what matters in business and markets

Stories

The zoning puzzle plaguing tech hubs

Illustration of small apartment building surrounded by empty space
Illustration: Rebecca Zisser/Axios

Booming companies have attracted millions of workers to America's tech hubs, but for all the population growth, the vast majority of these cities are still largely comprised of single-family homes with backyards.

Why it matters: There's not nearly enough space to house everyone, and the limited supply is driving costs to dizzying heights. Changing the laws to address the issue means brawling with stubborn residents and powerful corporations — and as of now, even with thousands of homeless people on the streets in these tech havens, no one seems ready to compromise.

The big picture: Zoning restrictions limit cities from getting denser and, according to some experts, are the primary drivers of exploding housing costs in places like San Francisco, Seattle and Austin.

Adding apartments, condos and multi-family dwellings would start to drive prices down, these experts say, but the laws are often rooted in racism and are difficult to change.

  • The housing crisis is affecting everyone in superstar tech hubs, but has fallen particularly hard on low-income residents and people of color. Historically, cheaper apartments or multi-family dwellings house more lower-income and non-white residents.
  • "Look back to see what the incentive was for zoning rules created decades ago, and often they have race and segregation at their center," says Diane Yentel, CEO of the National Low Income Housing Coalition. "Before these laws, the country wasn’t really segregated by race."

By the numbers: In the past five years, average home prices in U.S. tech hubs have skyrocketed, pricing out families, communities of color, and single people as well.

  • San Francisco's average home price ballooned 69% from $800,000 in December 2013 to $1,350,000 in December 2018, per Point2 Homes.
  • San Jose jumped 58% to $965,000.
  • Seattle surged 66% to $699,000.
  • Austin jumped 33% to $301,000.

Those same cities are overwhelmingly zoned for houses from the 1950s, according to data from UrbanFootprint that was first reported by the New York Times.

  • San Francisco's zoning laws allocate 53% of land to detached, single-family homes.
  • San Jose: 94%
  • Seattle: 81%
  • Austin: 68%

”We’ve been way too flatfooted on housing, and we still are,” says Seattle Council member Teresa Mosqueda. “But we can’t possibly keep up with this growth.”

Race continues to drive the debate: Many of the tech hubs, where the housing stock is lowest, are also the most progressive pockets of the country. But "a lot of the resistance to removing some of these barriers still have race at their core," Yentel says. "You hear it implicitly through coded language or dogwhistle language. People cite, 'changing the nature of a community' as a concern."

What's happening: Several company towns are trying to add affordable housing options, but they are finding that the reigning firms are resistant to these efforts.

  • Amazon staunchly opposed a "head tax" in Seattle that would have charged companies $275 per employee, per year, generating around $48 million in recurring revenue for the city. The company later donated around $5 million for affordable housing.
  • Amazon did not respond to an email.
  • Twitter CEO Jack Dorsey has fought certain taxes to alleviate homelessness in San Francisco, though he has supported other types of aid.

The other side: Some companies have put lobbying power and money toward addressing the housing crisis in their hometowns.

  • Microsoft, Amazon's neighbor in the Seattle area, recently gave $500 million to support low- and middle-income housing in the city.
  • Salesforce CEO Marc Benioff backed a San Francisco bill — the same one Dorsey opposed — that requires businesses to pay for homelessness services and has donated $30 million of his own cash to the cause.