Joint Venture Silicon Valley on the COVID Crisis & Beyond

Given the region’s pre-existing net loss of domestic migrants annually, should we expect an even larger mass-migration out of the region post-pandemic? The COVID-19 pandemic is likely to have two impacts on housing markets throughout the world in the short term:

• The housing market—both home buying and rental—is likely to freeze. Transactions will slow down sharply, perhaps even grinding right down to a halt, and people will make do with their current living arrangements for the foreseeable future.
• Rent and mortgage payments will begin failing at increasing rates the longer the pandemic persists. The failures will stem from individuals losing income and/or fearing future loss of income as the pandemic prevents entire sectors of the economy from operating, and as those negative shocks ripple through the rest of the economy.

In Silicon Valley, specifically:

• The above applies, especially to those employed in the sectors of the economy whose operation is most susceptible to the pandemic.
• Employers relying on venture capital funding to support their operation will find the funding environment far more challenging than it has been in many years, and many could fail as a result.
• However, the share of residents’ income deriving from exceptionally deep-pocketed employers (the largest tech firms) will help Silicon Valley be more resilient to the pandemic’s economic impacts than most other regions.

It would be prudent and commendable for mortgage lenders to allow borrowers to defer payments, thereby preventing defaults and/or bankruptcies. It would also be prudent and commendable for landlords to extend such deferrals to their tenants. These types of policies are being discussed broadly, and have already been enacted by some lenders. Meanwhile, the State of California and cities within the state are in the process of enacting moratoriums on evictions, which could help prevent some of the worst symptoms of the problem.

The pandemic will almost certainly halt migration while individual mobility is hampered. In the event that housing prices remain subdued after the housing market thaws, and that the local economy remains resilient compared to other regions in the U.S., that may reduce the magnitude of outbound domestic migration from California.

Finally, the pandemic will likely remove the housing affordability crisis from the headlines temporarily. However—barring any grand rethinking of our human geography and the role of cities—the pandemic is unlikely to fix the underlying deep-rooted causes of California’s housing affordability crisis, and the issue is almost sure to return to the headlines once better economic times return.

Issi Romem is an Affiliate Researcher and Economic Advisor to the Silicon Valley Institute for Regional Studies, specializing in housing and growth. He is also the founder of MetroSight – a research consultancy focused on urban, labor, housing, and real-estate economics – and a fellow at the Terner Center for Housing Innovation at U.C. Berkeley.