Working Partnerships report on Google San Jose Expansion full of flaws, dubious assumptions

Working Partnerships recently released a report suggesting that Google’s Diridon project will cause rents to rise an eye-popping $235 million per year.

Recently-uncovered methodological, logical, and statistical flaws in the report regarding the free market project have drawn notice and undermined the report’s influence and relevance.

The main problems with the report are:

* It assumes a disproportionate amount of people working at Diridon will live in San Jose. This proposal makes a methodological error by assuming that a large majority of the estimated 20,000 new high-wage workers and 8,000 low-wage workers that will work in the new Google campus will live in San Jose. 

This assumption is central to the report's thesis, and it's flawed. Here's why: First, the study does not indicate how it estimated the number of Google employees moving to San Jose/Santa Clara County.  That estimate informs how the housing market will change with Google’s move.  Rather than giving a proper citation to its figures, the study merely says: “Source: US Census Bureau, Quarterly Census of Employment and Wages, Beacon Economics.” This citation does not properly invite further reading, but having investigated the vague source, one finds that the Quarterly Census of Employment and Wages does not have any publicly available data on San Jose or Santa Clara County since 2012.  This is rather troubling, especially since more recent data is available from the Federal Reserve.  The poor choice of data and citation method puts the validity of the study’s estimates in question. Second, this concept runs counter to demographic realities. Most workers in San Jose do not actually live within its city limits. Google is already located within this vast metro area: its workers live in cities across the nine counties, even if it's headquarters in Mountain View. Many of the high-wage workers will likely be transferring from the Mountain View campus and will not be new workers moving. Furthermore, low-wage workers will not necessarily be moving into San Jose; they will either commute like many others do, or they already live in San Jose.  

* It suggests Google is only builder in town. One of the study’s primary assumptions is that Google or the city must be the only actors building housing in response to the new campus. There is no reason why this should be: there are hundreds, perhaps thousands of developers, builders, contractors, and homeowners who could meet housing demand if zoning and regulations were relaxed. Google is not solely—or even primarily—responsible for the housing shortage and therefore has no obligation to bear the brunt of the burden correcting past city council planning mistakes. 

* The study correctly identifies problem with housing growth in Santa Clara County, but omits the root cause of the shortage. Zoning laws—which become de facto housing quotas in areas zoned primarily for single-family homes—cause the shortage Beacon Economics identifies.  The study does not primarily target zoning laws for possible displacement; rather, it puts the burden squarely on the government and Google to build housing that the market can provide more dynamically.

* It cherry-picks data in a deceptive manner. By focusing on Santa Clara County, rather than the more specific and relevant San Jose, area in assessing rent burdens, the study uses data that is more favorable in supporting it conclusions . Moreover, the study does not focus specifically on lower income people, who tend to be more affected by rent increases.  Instead, it generalizes by using median income and rents which do not accurately indicate real rent burdens.

For example, the study claims that rents have increased at more than triple the rate of wage increases from 2010-2017 (wages rising at 21% in that time period while rents have risen 69%).  However, wages in the San Jose area for people earning in the lowest quartile have actually remained steady compared to rents, with the former rising 12% and the latter rising 13% from 2008-2017.  (Mercury News)

Additionally, the study cites another study on the displacement in the Diridon District that the Urban Displacement Project conducted, which Working Partnerships USA co-authored and “reviewed…to guarantee accuracy” This is dubious academic practice: Working Partnerships cites statistics on displacement from a study it “verified,” itself.  Moreover, the qualitative data in the initial study was not randomly selected.

* Its solution could actually raise prices. Subsidizing housing, as the study suggests, will likely cause an increase in the cost of the housing relative to the increase in real income for renters whose housing is subsidized. Studies have shown that other types of subsidies (especially subsidized student loans) cause those providing the subsidized service to raise the price of the service once they know it is subsidized. Additionally, landlords, knowing that the housing is subsidized, would be incented to raise rents so that renters pay on net the same amount as before the subsidy.

* The study does not fairly explain the impact of inflation on projected rent increases.  The study states: “By 2030, if Google were to not include any additional housing in its project, renters would pay an average of $816 a year in additional rent due to Google’s San José campus” Assuming a 2.3% inflation rate for 10 years—which is a stretch—rents will increase by $663 by 2030 due to inflation alone. Because we don’t know the methodology the study uses to address inflation, (it mentions the phenomenon only once, and only regarding real wages in Silicon Valley as a whole), we don’t know how that number ($816) came to fruition.  The study does not identify its projected inflation rate in San Jose over the next decade or the model it uses to factor in inflation when calculating rent increase. No further reading was provided in the footnote that yielded this figure. Working Partnerships and Beacon Economics have produced a study whose data is practically unverifiable.

— by Simon Gilbert, Opportunity Now Web Editor and sophomore at Claremont McKenna College, where he is studying history.