☆ Opinion: Silicon Valley’s affordable housing metrics insufficient, outdated, unhelpful
In this Opp Now exclusive Q&A, we chat with Santa Clara CM and engineer Kevin Park about why he believes the “area median income” metric no longer serves the Valley’s lower-income residents. Due to wage disparities, local median salaries (and thus, affordable housing prices) are grossly overinflated—so is it time we rethink affordability?
Opportunity Now: First, walk us through AMI and how it works in Silicon Valley.
Kevin Park: AMI stands for “area median income”—so at your local median income, 50% of people would be making less than you and 50% more than you. This metric is used to calculate what qualifies as affordable housing.
But some problems can arise from this system. Let's say that 60% of AMI is what a project targets as low income, making a family who makes 0–60% eligible for affordable housing. And in this scenario where AMI is $180k, you are making $180k/year. Whereas most everyone else is either making $60k or $360k. Even though you’re statistically the median of this group, an AMI of $180k isn’t a very helpful metric for determining what’s affordable. Fifty percent of AMI would be $90k. That doesn’t help the (many) folks making $60k.
So, hypothetically, what if we raised the wage of everyone below you to $90k? Your salary is still the median. Remember: AMI isn’t an average but the middle number. This is the kind of issue we run into with AMI in the Valley.
ON: Not to mention, things get tricky when government steps in re: minimum wage mandates.
Can you give us an idea of a Bay Area AMI?
KP: This may surprise you: Santa Clara’s median income is close to $180k for a family of four, as in our example.
It sounds great when the city says, “We’re building affordable housing.” But when you actually dig into the numbers, when you understand AMI and how we’re using it, you learn that Santa Clara’s “affordable” housing could be legally inhabited by a family making up to $215k.
(As an aside, if you buy a below-market-rate house and later start making a high salary, you're able to stay in that housing. You’re not disqualified by your current, larger income.)
That’s why I think it doesn’t make sense to use AMI alone to determine affordability. Even if we say we’re targeting 50% of AMI, then that’s for families making $0–$90k. We need to recognize that people at the higher end of that scale are more likely to apply for and get the housing than those at the lower end. So if we're wanting to make affordable housing for people making $45k, we should specifically target them, not just say they're also included in that scale.
ON: Is AMI normative in most cities? Or is it—and its associated problems—unique to the Valley?
KP: It’s used all over the U.S. and is meant to account for neighborhoods having different wealth levels. It may work well in those other jurisdictions. But AMI is not helpful to the people who actually cannot get housing in Silicon Valley.
ON: How so?
KP: Let’s take this area 30 years ago. Before the dot-com bubble, before Google, Facebook, etc. What was the salary for an engineer back then? Around $60–70k. Private practice could make $100k or more. But we didn’t have engineers making three to five times the salary of, say, a veterinarian.
This change is attributed to companies like Google and others that followed on the heels of its success. For example, one head of Human Resources at Google was an engineer who wrote a book that changed the HR landscape. He disrupted hiring norms in Silicon Valley. He proposed that if someone’s really valuable, your company should pay them exorbitantly—say, twice as much; do not worry about paying fairly. Local organizations started adopting this idea.
ON: And who else is as “really valuable” to Bay Area companies as engineers?
KP: Whenever you pay people salaries without considering the rest of the roles landscape, you run the risk of breaking the economy. And when you focus on a single role, it further breaks the economy. The neighborhood I live in used to be diverse. We had people who were teachers, accountants, daycare workers—but now, almost every single new homeowner has come from high tech.
ON: So how do we get out of this hole?
KP: Ideally, we’d want some kind of gradation between salaries, not this giant leap from lower income to very, very high income. If that could happen, then AMI would produce more helpful data for affordable housing.
Not to mention, we get an unbalanced society when it’s overrepresented by one particular profession. Jim Jarmusch, a famous movie director, once asked, “Who’s the most important person on set?” You might think he’d say the director. Or what about the actors, the cameramen, makeup personnel, even whoever booked the set—who’s the most important? But Jarmusch responded that everyone is. You can talk about the most important person on set, but you have to recognize the contributions of everyone that helped make the movie; otherwise, the movie wouldn't get made.
ON: We’re trying to imagine a movie-making team of just cameramen. Or stunt doubles. Or any one job.
KP: We need all kinds of people. And the same is true in Silicon Valley, which tends to prioritize tech positions.
In general, AMI should be used in conjunction with other things (for example, CPI). AMI shouldn't be the only index for affordability because there are people who make a lot of money who struggle. There are people who make less money who don't struggle as much. For example, a lot of people choose not to have children because a child increases costs and, for many families, halves their money-making power. But in my area, AMI accounts for both parents working, so its data isn’t necessarily realistic for lower-income families where the effect of two people working still may not get them to AMI.
Also, we should lower the requirement for affordable housing, who’s defined as “needy.”
ON: I.e., instead of 0–60% AMI, something more like 0—20% AMI?
KP: Yes. This could weed out some of the higher salaries that “affordable” housing currently covers. We need to target the specific communities that need help.
Progressive taxes were supposed to be the mechanism through which people who made more money paid more taxes. But the reality is, people with more money have more resources to spend finding out how to pay fewer taxes.
ON: Whatever solutions might be possible, we’re guessing they won't be quick ‘n’ easy.
KP: Once you’ve broken an economy, it’s really hard to un-break it. We clearly need some re-balancing in the Valley.
Silicon Valley was supposed to be a place where you can take big risks for big rewards. There's a line in the movie Ratatouille that says, "Not everyone can be a great chef, but a great chef can come from anywhere." Silicon Valley used to be the place where great ideas could come from anywhere. It wasn't only about education, and it wasn't only about an engineering background. But when certain communities are excluded from Silicon Valley—and even the people who are here—because of the burden of housing and jobs, they're afraid to take risks. We've limited the potential of Silicon Valley.
If you make a lot of money, you can buy a house anywhere. But we need to create an environment where our essential workers who aren't making a high-tech salary can live in the same neighborhoods.
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