Silicon Valley is an economic powerhouse, and some of the cogs that drive it are more functional than others, claims a new report recently released by the Bay Area Council Economic Institute.
The report cites a number of statistics that point to the Bay Area as a major economic power in not just the U.S., but the world.
● If the Bay Area were a country, its economy would be the 19th largest in the world, with a gross domestic product of $748 billion. That's bigger than the economies of Saudi Arabia and Switzerland.
● Between 2014 and 2017, the Bay Area's gross domestic product grew at an annual rate of 4.3 percent, higher than the U.S. and faster than most of the world's 25 largest economies.
● The national economic impact of Bay Area companies was $1.4 trillion in 2014.
● People moving into the area tend to be more affluent, working in high-margin industries, while those moving out tend to be lower-wage and working in lower-margin industries.
The region continues to be a tech epicenter. The San Jose metro region has the highest concentration of high-tech jobs in the country. In 2017, 45 percent of the U.S. venture capital invested was put into Bay Area companies.
And within the world of Silicon Valley tech companies, there are some clear winners. Since 2013, the report states, Alphabet, Apple and Facebook have increased their revenues 10 times faster than the rest of the Fortune 500 companies.
Yet all is not rosy in the region, the report assets. It points out the region's shortcomings – without calling them fatal flaws.
"Predicting an impending end to (Silicon Valley's) historic run has become a cottage industry," the report's authors state. "And certainly the Bay Area's ongoing economic success cannot be taken for granted. … These concerns are real but the doomsayers focus too often on the dark clouds on the horizon, rather than on the green shoots coming out of the ground all around them."
Around 2014, the cost of living began to outpace increases in the median wage in the Bay Area. By 2016, the proportion of households in San Jose and San Francisco-Oakland areas that spent more than 30 percent of their income on rent hovered near the top nationwide, after Los Angeles and New York. Throughout the Bay Area, that proportion ranges from 37 to 41 percent, based on county.
Today, 46 percent of Bay Area residents say they are considering leaving the region within the next few years, according to a 2018 Bay Area Council poll.
The report states that the Bay Area has outperformed the nation in nearly every economic measure, except for population growth. "Individuals and families that otherwise might move to the Bay Area to find opportunity have been prevented from doing so by the Bay Area's high and accelerating cost of living, increasing congestion, and aging infrastructure," its authors note.
The region is also permitting fewer homes in relation to population increase than other national metro regions. Between 2003 and 2017, the Bay Area yielded about 312 new home permits per 1,000 new residents. During the same time, the Boston region permitted about 445 new homes per 1,000 new residents and the New York region permitted 404.
Also, compared with other parts of the state, job growth in the Silicon Valley region and San Francisco skewed far higher than the number of homes permitted between 2007 and 2017.
In contrast, California regions like Placer County, the San Joaquin Valley, and Yolo County had roughly equal levels of job and housing growth. And Sacramento County permitted nearly twice as many homes as jobs that were created during the same time period.
The report also points out that traffic is highly correlated with economic activity, and notes that large numbers of people are commuting from increasingly faraway places. More than 80,000 people commute into the Bay Area from the northern San Joaquin Valley each day, the report says.
Meanwhile, home prices in the central core of the Bay Area continue to escalate as the ratio of housing units to jobs tilts further askew. Between 2007 and 2017, the report states, Silicon Valley added 200,364 jobs, while only 72,887 housing units were permitted.
The report is the 10th in a series produced since 1997 by the Bay Area Council Economic Institute and McKinsey and Company, with support from PwC, Wells Fargo, San Mateo County Economic Development Association and North Bay Leadership Council.
The Bay Area Council is a public policy organization with membership from large area employers.