The Project in the Economic Context of Silicon Valley

Below is contextualizing details for the Alquist Redevelopment as it relates to the economic landscape of Silicon Valley. For any questions or concerns not addressed here, email workforcehousing@sjsu.edu.

• What is area median income (AMI)?

  • Area median income AMI is the middle-point of household salaries across the full range of wages in a given metropolitan area. San José comprises part of the San José-Santa Clara-Sunnyvale metropolitan statistical area where AMI is calculated. As AMI takes into account the full range of salaries and wages for households, it is presented as a dollar figure in the form of an annual salary based on household size.

    As of fall 2022, the AMI for San José is $117,900 for a single-individual household and $168,500 for a household of four. AMI varies for household sizes of other amounts and can be found at the California Department of Housing and Community Development (HCD) website.
    

• What are the area median incomes by household size?

  • The latest area median incomes published by the California Department of Housing and Community Development [pdf] are as follows:

    1-person (one wage-earner) households: $117,900, gross, per year

    2-person households: $134,800

    3-person households: $151,650

    4-person households: $168,500

    For other household sizes, other incomes, definitions and explanations, and information about other counties, visit www.hcd.ca.gov.

• How is area median income (AMI) used?

  • The California Department of Housing and Community Development (HCD) sets income limits for various subsidized housing programs based on different levels of AMI. Additionally, various levels below 100% of AMI are defined as degrees of low-income: earning under AMI defines a household as “low-income”, then onto “very low”, “extremely low”, and “acutely low”.

    Alternatively, as many households earn above the AMI, this metric can be used to calculate the upper limit of those who qualify for below market-rate housing. The most accommodating forms of subsidized housing can include those who earn upwards of 120% AMI.

    As a general-use metric, AMI can also be interpreted as an indicator of overall affordability. A high and ever-increasing AMI can be taken, with several other data points, to quantify a growth in wages, economic activity, and in some cases wealth inequality.
    

• How does AMI factor into this project?

  • Workforce housing is a form of housing that is specifically designed and built to accommodate wage workers within a specific range of incomes. Workforce housing is typically built by an employing organization for its workers and rates for rental units and ownership units can be at and/or below market-rate. Typical income ranges, through the AMI metric, for workforce housing aim to accommodate wage-earners who make between 80% to 120% of AMI.

    The SJSU workforce housing project aims to be within reach of SJSU-affiliated individuals earning wages from a range of around 80% and up to 100% AMI. This will translate to rents that are below and, in some cases for specific units, at market-rate. While this range of rental rates may not qualify the project as a strictly affordable housing complex, the rates offered to graduate students, faculty and staff will be below the prevailing market-rates often seen in the San José area.
    

• What effect will AMI have on rental rates for this project?

  • With workforce housing rental units being offered to those who earn between 80% and 100% AMI, rental rates aim to be within reach at or below 30% of monthly gross income for the salary of each prospective household. This remains to be a figure that can change with market conditions and the status of the project’s financing and as such can and may very well change as time goes on.

    For example, at 80% of a single-individual household AMI, which is an annual gross wage of $94,320, 30% of that income across a 12-month tenancy, translates to a $2,358 per month spent on rent alone. 30% is the generally accepted rate at which household expenses, in most cases: rent, should be kept.

    For a four-person household, rental rates set at 80% of the AMI of $168,500 would be 30% of annual gross household income, divided by a standard 12-month tenancy. This would amount to a rental rate of $4,212.50 per month for a family of four.

    The details of financing as well as the parameters set by the eventual leasing agency will determine the actual, final rental rates of this project. Figures quoted here should only be taken as part of a demonstration exercise and should not be taken into consideration for interpreting project viability now or in the future.
    

• Homeownership in Silicon Valley

  • The national average rate of homeownership in the United States is 65%, but is only 49% in the San José area. Nationally, the median price of a home is just over $300,000, but over $1,400,000 in San José. The average mortgage of a median home is over $2,200 nationally, but over $7,700 in San José.

    With the high barrier to entry to housing, the average salary needed to purchase a home in San José is over $330,000 which translates to 2.8 times the individual area median income (AMI) and 1.9 times the AMI for a household of four. Compared to the national average salary to purchase a home of $75,000, San José remains the most expensive housing market in the nation and is an especially difficult market for specific job sectors like teachers.

    According to the fall 2022 housing market demand survey, SJSU students and employees who expressed interest in homeownership expressed the difficulties with saving up for the down payment levels seen as standard in the Bay Area housing market. Homeownership remains increasingly out of reach for people in the area who were not fortunate enough to have bought a house long ago.

• The rental market in Silicon Valley

  • Compared to national averages for rents, San José rents for one and two-bedrooms reach as high as $2,700 and $3,200 per month respectively. Effectively market-rate averages for the most-common types of rental units lock out most SJSU employees and students, absent any kind of long-term sustainable subsidy or cost control.

    
    Workforce housing aims to make access to living accommodations within reach to those who earn up to the area median income by setting rates that are below what is typically seen for similar apartment types on the open market. While the average rental rate for a one-bedroom in San José can be over $3,000, a similar workforce housing apartment would be available to a wage earner making 80% of AMI would cost $2,400 per month. Where the average three-bedroom unit can go for over $4,300 in San José, a workforce housing unit that also has three bedrooms could rent for $3,500 to those making 80% of AMI.
    

• What is subsidized housing and how is this project different?

  • Subsidized housing, also known as affordable housing, is housing that is made available only to specific groups of people who meet residency and income criteria required to qualify for residence. For example, various housing projects around San José stipulate income limits of anywhere from 30% to 60% of area median income (AMI) and may specifically be built for seniors, people with disabilities, veterans, and the formerly unhoused. Levels of income that are within 30% to 60% of AMI, and to some amounts both below and slightly above, are incomes that are at the lowest possible levels. This means housing of this type is meant to be a deeply affordable housing option to those for whom there is often no other alternative housing.

    SJSU’s project is a workforce housing project with half of the units to be leased at market-rates. While the leasing of market-rate units helps to subsidize, in part, the cost of the at or below market-rates of the workforce housing, because this project will still have rental rates far above heavily-subsidized housing rates, it is not a traditional “affordable housing” development.
    

     

• How will building 1,000 units downtown help address overcrowding?

  • Defined by the United States Department of Housing and Urban Development (HUD), overcrowding is the circumstances in which more than one person occupies one room. On average, the typical SJSU-affiliated household of renters consists of 2.8 people, statistically, occupying 2.1 rooms - or 1.3 persons per room. HUD defines a rate of 1.5 persons per room as severe overcrowding. Taken into account, this often means renters who either attend SJSU as a student or work at SJSU as an employee either live in shared accommodations with a partner or roommate, or with family or housemates. In general, overcrowding becomes a greater issue the lower the household wage is, as such for the inverse. 

    In the Bay Area, where housing is scarce, overcrowding becomes an issue for households where either multiple unrelated individuals and/or families occupy the same property leading to a variety of health issues. This is contrasted by density where individuals and families are allowed to occupy their own rooms and separate units of housing without having to share accommodations. A greater density of units in a given area provides more options at a range of affordability levels that can absorb built up demand for housing not currently met by rates of housing construction.

    This project aims to address the shortage of housing both by adding capacity to San José’s rental housing downtown and by dedicating below market-rates to SJSU students and employees. Providing another option of housing closer to campus that is within reach to a majority of the SJSU workforce can allow those who want to move out of shared accommodations the choice to do so.

     

• Why build more housing? Isn’t enough being built?

  • On average, cities of a similar size to San José are adding upwards of 15,000 units of new housing online each year. This includes a range of apartments, condominiums, and single-family houses at varying levels of income affordability. However, in total, the three major cities of the Bay Area - San José, Oakland, and San Francisco - collectively approve half that amount, or 7,000 units of housing across the entire region per year. This shortage of housing is an ongoing issue that, paired with the constant growth of jobs in the region, creates both an imbalance of affordable housing to jobs and a level of heightened pricing competition that locks out SJSU’s workforce from much of the housing market.

    Simply put: not enough housing is being approved and subsequently built at any level of affordability that is within reach to SJSU students, faculty, and staff.