Too Much Of A Good Thing?

Pricey houses. Labor shortages. Traffic jams. How success could choke the area's growth

For Harvey and Martha Moore and their four children, the Silicon Valley dream is a cruel mirage. They became homeless in March, after Martha's parents, with whom they were staying, lost their apartment to a 50% rent hike and moved to Manteca, 65 miles away. Harvey, 23, makes up to $2,200 a month as a plumber, but they still can't afford a home anywhere in the Valley, where Martha grew up. Now, they feel lucky to have a small room at the Santa Clara Family Living Center, a homeless shelter housed in a former mental institution. Says Martha: "If it wasn't for this place, we'd probably be living in a car."

Despite the region's latest boom--indeed, because of it--stories like the Moores' are becoming too common. Their plight illuminates a surprising dark side of the high-tech dream. The longer the Valley booms, the tougher it gets for most people to live, raise a family, and make a business grow.

NO TRICKLE-DOWN. For many residents, the costs are simply too high in the Valley. Sure, a lot of tech workers get stock options. But for tens of thousands of plumbers, postal workers, janitors, and other lower-income workers, the Valley's vaunted wealth doesn't trickle down. Janitors, for instance, earn about $8.40 an hour to clean the offices of chief executives making $10,000 a day. Real wages for the lowest-paid 25% of workers here have dropped 13% since 1989, according to San Jose labor group Working Partnerships.

By contrast, money is the least of the business community's problems. Indeed, everything but venture capital is scarce: roads, office space, even good engineers and managers. Given the struggles of both residents and businesses, some leaders wonder how long the Valley can keep expanding. "You reach a point where the constraints just don't allow you to do more in the Valley," says James H. Clark, co-founder of Netscape Communications Corp. The quintessential success story of the Valley's current boom, Netscape is setting up operations in Austin, Tex., San Diego, and Seattle to avoid local overcrowding. Adds Halsey Minor, CEO of Net publisher CNET Inc.: "The Valley's a victim of its own success."

Nowhere is that more glaring for both individuals and businesses than in the housing crunch. The problem: From 1992 to 1996, the Valley added 125,000 jobs but only 26,000 housing units. The resulting crunch lifted the median price of a single-family home to $319,000 in June, up 14% from a year earlier. That's out of reach for 70% of residents--and with undistinguished houses in Palo Alto bumping against the $1 million mark, recruiters say getting talent to move here is very tough. Investment banker Sanford R. Robertson says he tried recruiting a banker from New York City recently. His wife "spent one afternoon with a realtor and the rest of the weekend crying" over sticker shock, he says.

The shortage has spread to rentals, too. Apartment rents shot up 20% last year, and the vacancy rate is a scant 1.4%. One result: Some 20,000 residents will find themselves homeless at some point during the year, according to the Emergency Housing Consortium, a nonprofit shelter group. Santa Clara County supervisors recently started a housing trust fund, hoping to raise $100 million for affordable housing. But that could take years.

GRIM PROSPECTS. Meanwhile, traffic congestion keeps getting worse. Delays in moving goods and people cost companies $3.4 billion a year, according to the Metropolitan Transportation Commission. No wonder it's a sensitive topic: After the city of San Jose was sued for potential traffic problems at new offices for Cisco Systems Inc., the networking giant agreed to pay $25 million for road improvements.

Commutes are getting insane, too. For four years, Bill Sweeney, a 41-year-old water department maintenance worker in Redwood City, has commuted the two hours it takes to drive 90 miles from Modesto. That's the only way his family of four could afford a $133,000 house that he figures would cost $350,000 in the Valley. But there's a toll, he says: "You get home and eat and shower and have two hours before you hit the sack."

Prospects for improvement look grim. State and federal funds won't cover the $2.3 billion needed through 2006 just to keep congestion from getting worse. So planners are considering fees that would add $4 per square foot to the cost of commercial buildings, and $2,500 to the price of a home.

Meanwhile, commercial vacancy rates fell from 17% in 1992 to 5% in 1996, and agents say they're down to 3% today. As a result, it takes far longer to find an office than it does to find financing. BackWeb Technologies, an Internet software startup, grew to 20 people before finding space. For four months, armed with cellular phones and notebook computers, employees met in hotel lobbies and restaurants. They slipped waitresses huge tips to let them stay all day--and racked up $3,000 a month in cellular bills. They eventually found space in San Jose--but are already bursting at the seams.

STRESSED OUT. For all the Valley's overcrowding, its 3% jobless rate has created a labor shortage, from minimum-wage retail clerks to engineers and top managers. Early this year, PointCast Inc. delayed its planned initial public offering to find a chief financial officer--only to wait even longer while it now hunts for a CEO. "Finding great people is one of the limiting factors to growth in the Silicon Valley," says John Danner, CEO of NetGravity, a Net-advertising software startup in San Mateo.

Given the explosion of jobs, Valley workers should feel more secure than ever. But at least 25% of new jobs are temporary or contract jobs--subject to layoffs at the first sign of a downturn. When chip-equipment maker Applied Materials Inc. downsized last year, for instance, it cut 7% of permanent employees--and half its temporary workers.

Then there's the toll the hypercharged atmosphere takes on personal lives. The stress on family life has led some companies, such as CNET, to the dubious policy of favoring young, unmarried people. Says Sun Microsystems Inc. CEO Scott G. McNealy: "It's really hard to do a startup with two kids at home."

Will any of these problems choke off the Valley's growth? James G. Treybig, founder of Tandem Computers Inc., worries that startups may find it tougher to grow into big industrial concerns here. "Silicon Valley is good for new ideas and new company formation, but it's not necessarily good to have a big company there," he says. Not the most promising trend for the region that's supposed to lead the global economy into the next century.