July 28, 2017

Financial Times: Google and Facebook lay foundations for modern-day company towns


The housing crisis in the Bay Area is fast becoming an issue of international concern. George Hammond at the London-based Financial Times interviewed SV@Home’s Pilar Lorenzana for his recent article on Google and Facebook’s attempts to build housing in North Bayshore and Menlo Park.

See the original story at the Financial Times.

Google and Facebook lay foundations for modern-day company towns

US tech companies revive the 19th-century concept of providing homes and amenities for workers

By George Hammond

North Bayshore, a neighbourhood in Mountain View, California, is fast becoming a one-company town. The area is home to Alphabet, parent company of Google, which employs 20,000 staff locally and which last month announced plans to spend up to $30m on building 300 modular homes. According to Ty Sheppard, communications manager at Google, the units will be “short-term housing for Googlers only”.

The plan is the latest effort by Google to expand its property footprint. One particular deal illustrates the company’s ambition in the area, a 500-acre sweep of coastland a 40-minute drive south of San Francisco. In 2015, Google competed with LinkedIn for rights over 2m sq ft of scarce North Bayshore land. Both made lavish assurances to win local authority approval: a new police station, environmental measures, even college scholarships. Ultimately, LinkedIn got the better of the deal, receiving 1.4m sq ft to Google’s 515,000.

On hearing the decision, David Radcliffe, Google’s vice-president of real estate, told local councillors: “It’s a significant blow. I’m not sure how I make any of this economically viable.” He never had to. A year later, a property swap with LinkedIn gave Google ownership over almost all of North Bayshore.

From owning about a quarter of the office space in the area a decade ago, Google has expanded through a series of deals. These include a $1.16bn agreement with Nasa to lease the space agency’s former air base at Moffett Field for 60 years, where the new modular homes will be built.

Local opinion on Google’s growth is divided. George Markle, a Mountain View resident for more than 40 years, says that the city is generally “proud to be the home of one of the most innovative and life-changing companies on the planet; but many of us suffer from exploding rental rates and property taxes as real estate prices skyrocket”.

Another local, Robert Rich, agrees. “Google’s meteoric growth has put immense pressure on the cost of housing here,” he says, pointing out that local homes that sell for $1m “are old, small, humble bungalows, not mansions”.

Over the past five years, the median rent in Mountain View has risen from $2,970 per month to $4,083, according to Zillow, the property database. In the same period, the average home value has almost doubled, from $812,000 to about $1.53m. On Miro Avenue, a 15-minute drive from Google’s headquarters, Sotheby’s International Realty is listing a 1,637 sq ft, three-bedroom townhouse for a shade under $1.4m. In 2010, when the nondescript property was built, it sold for $732,000.

In the Los Altos hills overlooking Mountain View, local agent Campi Properties is listing a newly built seven-bedroom house with a pool for $18m. At $1,666 per sq ft, the price is comparable to properties in Manhattan’s Lower West Side.

The uptick in house prices reflects rising demand: the ratio of workers to housing is estimated by local housing advocacy group SV@Home to be almost three to one. That gap is widening, says Pilar Lorenzana, deputy director of the group. “In 2015 alone we created 43,000 new jobs and only 5,000 new homes.”

It is not just Google trying to combat the housing shortage in Silicon Valley. Up the coast in Menlo Park, Facebook’s new Willow Campus includes plans for 1,500 homes, which will be available to the public, with 15 per cent offered below the market rate. In 2016, the company committed $18.5m to a Catalyst Housing Fund for low-cost housing. The moves, according to Lorenzana, are about “Facebook being a responsible corporate citizen, and stopping employees leaving”.

For both Facebook and Google there is also a material case for building homes locally: if property costs become unsustainable, employees will either have to move away or require higher wages.

As well as developing its own units, Google is working with the City of Mountain View on a plan to develop 9,850 homes in North Bayshore to be available on the open market. This type of public/private partnership, says Lorenzana, is one solution to the housing crunch.

In some ways Google and Facebook are following a 19th-century blueprint for company towns. Established to house workers close to factories, the first generation of such towns met varied fates.

Fordlandia, Henry Ford’s rubber plant in northern Brazil, failed spectacularly. The company’s professed motivation was not just “to make money, but to help develop that wonderful and fertile land”. Rubber production didn’t take off and tensions between local workers and management were persistent. In 1945, Ford’s grandson cut ties with the city.

Hershey, in Pennsylvania, and Cadbury’s Bournville, south of Birmingham in England’s West Midlands, proved more successful, and continue to support sizeable populations. From their foundation, in 1907 and 1879 respectively, they aimed to better contemporary expectations of industrial towns.

In Bournville, a tenth of the land was designated green space; in Hershey, parks, a swimming pool and a school for orphaned boys were built. In both, trusts were established to guarantee the future of the towns after their founders were gone.

While Google is in good health, a one-company town may be no bad thing. Google’s arrival “has created a wonderful place for us to live”, says Leona Pearce, who lives in Shoreline West, a short drive from Googleplex, the tech giant’s headquarters.

However, locals would do well to remember that what is now the Googleplex was formerly the headquarters of Silicon Graphics. The computing manufacturer filed for bankruptcy in 2009 after Linux disrupted the market. Enduring success — for companies and company towns — is not guaranteed.

Buying guide

● An estimated 200,000 workers from outside the area travel into Santa Clara County every weekday

● Property taxes in Mountain View are limited to 1 per cent of the property’s market value. The average effective property tax rate in California is 0.81 per cent, compared with 1.1 per cent nationally

● Google is building a new campus adjacent to its current headquarters. Designed by Thomas Heatherwick and Bjarke Ingels, Charleston East is due to open in 2019

What you can buy for . . .

$750,000 A two-bedroom condo on North Whisman Road in Mountain View

$1.5m A four-bedroom family home on Ed Roth Terrace in Sunnyvale

$5m A detached seven-bedroom house on Bryant Street in Mountain View More homes at propertylistings.ft.com

Photo by Niharb on Flickr.