http://www.usnews.com/usnews/issue/990719/19sili.htm


US News and World Report
Business & Technology 7/19/99

Down and out in Silicon Valley
A severe housing crisis threatens the high-tech center's amazing boom

BY MARCI McDONALD

As night fell along the freeways that crisscross Silicon Valley like
electronic spaghetti on a circuit board, Kevin Landsdown steered his
silver Neon into the parking lot of the sprawling San Jose complex
that he calls home. In his stylish taupe T-shirt and khakis, he might
pass for any other employee in the heart of the information industry
currently driving the nation's economy.

But Landsdown, 44, is emblematic of the flip side of Silicon Valley's
success. For more than six months, since he was laid off from his
$52,000-a-year job as a master scheduler at Genmark, a manufacturer of
robotic systems, home meant a single cot crammed among 250 others in
the refurbished former General Electric plant that now serves as San
Jose's chief homeless shelter. What made the move bitterly ironic was
that he had once served there as a volunteer, ladling up soup to the
needy.

Will program for food. That prepared him for the worst;the
screams and whimpers regularly punctuating the night, the fistfights
that ended with visits from the police. But in the opulence of a
region that spawns an estimated 64 new cybermillionaires a day, what
stunned Landsdown was the changing face of its poverty. Among his
communal roommates were Jacqueline Cashen, an unemployed sociologist
with a Ph.D. from Stanford, and Sam Miller, a 41-year-old software
engineer from Washington who, despite an impressive resumé, found
employers interested in hiring only eager young recruits half his age.
Where once the San Jose shelter welcomed the same cross section of the
poor that can be found in any U.S. city, now 35 percent of its clients
are professionals and working families who have suddenly found
themselves left out of the valley's fabled boom as a result of the
country's worst housing crisis.

In this dynamic technopolis cradled at the foot of the Santa Cruz
Mountains, where wages rank as the highest in the nation, so too do
the costs of putting a roof over one's head–that is, if one can
find a home to buy or rent. Over the past seven years, in a region
where 250,000 new jobs were created, fewer than 50,000 new homes were
built. That shortage has pushed the median price of a house in Santa
Clara County, the valley's hub, to a record $410,000, more than twice
the national average. With rents for a nondescript one-bedroom
apartment starting at $1,100–and landlords routinely demanding
three times that amount as a deposit up front–the region is
rapidly becoming out of reach for those on the lower rungs of the
high-tech ladder, not to mention the army of service personnel who
keep their communities humming.

"In Silicon Valley, you're at the poverty level if you're making
$50,000 to $70,000 a year," says Barry Del Buono, a former Jesuit
priest who runs the nonprofit Emergency Housing Consortium, the
county's largest shelter provider. "We're serving firemen, cops, and
teachers. We even have the human-resource departments of some of our
biggest companies calling us, asking, 'Can you get this employee into
your shelter?' " For some executives, the high housing costs threaten
the valley's survival as a high-tech haven. "If we don't fix these
problems," says David Wright, president and CEO of Amdahl, "Silicon
Valley could become very empty pretty fast."

So critical has the housing crunch become that last month the Silicon
Valley Manufacturing Group, the lobbying arm for 140 of the region's
major employers, launched a two-year campaign to raise $20 million for
an innovative housing trust fund. In less than six months, it already
boasts $4.5 million from county and private foundation coffers to help
with down payments for first-time home buyers, build affordable rental
housing, and increase funding for homeless programs.

Once, few of the group's top CEOs would have considered that issue
part of their leadership brief. But what galvanized them into action
was the realization that the crisis was a threat to their companies'
competitive edge and bottom line. In an industry where one of the keys
to success is scouting the hottest young talent on college campuses,
the top candidates are increasingly spurning offers from valley-based
companies, according to recruiters. "I used to think we'd be able to
get 4 out of 5," says Wright. Now, he estimates, the area is losing 3
out of every 5 prospective engineering wizards to more affordable
high-tech regions like Austin, Denver, or Boston. "I think we probably
all agree we're not getting the best talent," he says.

I'll take Manhattan. Increasingly, workers are being forced to commute
from several area codes away. With an extremely limited public
transportation system, some are spending two hours on the clogged
expressways between Santa Clara County and the cheaper San Francisco
Bay area during rush hour–a prospect which is spurring more and
more people to telecommute. "You're seeing the increasing
Manhattanization of Silicon Valley," says Eric Schmidt, CEO of Novell.
"But we don't have a subway, so the people who we need are forced to
spend more and more time on the freeways."

In fact, the crisis is taking its real toll not on the valley's
celebrated engineering elite but on the patrolmen who keep its streets
safe and the teachers charged with preparing its children for the
future. With salaries in the $35,000 range–$50,000 less than the
valley's average income of $82,600–Santa Clara County Board
Supervisor Don Gage worries that, "Young people who are in apple-pie
professions, policemen and firemen who are serving the community, are
being priced right out of the market."

For Jean-Anne Bryant, a first-grade teacher at Willow Glen Elementary
School in suburban San Jose, it was a shock to discover that her
starting salary of $37,000 last year made her eligible for a
low-income housing program. "I felt, 'Gosh, I have an honorable
profession,' " she says. "How sad to think you're on a level that
qualifies you for affordable housing."

Even in the affluent Cupertino Union school district, where the
average price of a home is $621,795, Superintendent Bill Bragg has
watched soaring real-estate prices prompt a steady exodus of his
staff. For the first three to five years on the job, his young
educators are willing to live like they did in college–bunking in
with roommates or their parents and taking second jobs. But when the
time comes to settle down and buy a house, an increasing number are
choosing to move somewhere else. In Silicon Valley as a whole, 40
percent of the teachers leave their posts within the first five years.
And, despite a new housing loan program for San Jose teachers that
allows for $7,200 in assistance, most addresses are still far beyond
their reach.

Renting living rooms. For those earning the least–waiters,
delivery-truck drivers, and others who get paid the minimum
wage–making ends meet can be a constant, and often losing,
battle. At the Sacred Heart Community Service in downtown San Jose,
director Barbara Zahner has seen her client load increase by 300
percent over the past 12 years. Now, the center's bulletin board bears
witness to the more creative solutions to their plight. Some are
subletting strips of their living room floor space to those willing to
vacate by daybreak. Others, especially in the Vietnamese community,
have become covert pieceworkers, assembling electronic components for
major manufacturers at their kitchen tables for as little as $4 an
hour.

Late last month, as more than a dozen top executives gathered for a
board meeting of the Silicon Valley Manufacturing Group, they seemed
determined to tackle the housing crisis without pulling their
operations out to more affordable regions. Still, with no quick fixes
in sight, most realize it will take the same entrepreneurial
inspiration that gave birth to the digital age to turn the current
housing crisis around. "Silicon Valley has always been a cutting-edge
model for other places in the United States," says Del Buono. "I think
other parts of the country are watching us now because they want our
white-hot economy, but they don't want our problems. They're waiting
for us to provide a new role model."

Fortunately, Kevin Landsdown did not have to wait for the region's
leaders to devise a solution. Late last month, he finally landed a
$72,000-a-year contract with Hewlett-Packard as a product analyst and
was preparing to move out of the shelter to his own digs. "I knew if I
could get through this with dignity, not lose my cool," he says,
"eventually I'd come out of it."