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July 17, 2000

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The rising rents of Silicon Valley

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Kamla Bhatt

"Your new apartment rent effective August 1, 2000, will be $ 1420. The current market rate for your apartment is $ 1520," read Radhika Pande, 32, of Fremont with a sinking heart. She had just received an official notice from her apartment manager about the rent hike.

Currently, the monthly rent for her one bedroom, 600 square feet apartment in Fremont is $ 1150. Pande works as a sales manager for an IT company and draws a decent salary going by the national standard. Ironically, by Silicon Valley standards, her salary falls in the median range of $ 82,000.

"This is Fremont, not Silicon Valley," complains Pande. "Rent is supposed to be cheaper here!" Strictly speaking, Fremont is not counted as part of Silicon Valley. It is located in neighbouring Alameda County. But the ripple effect of the housing crunch in Silicon Valley can be felt all the way to Alameda and Contra Costa on the East Bay.

Silicon Valley is a two-county stretch that includes Santa Clara and San Mateo. According to recent reports, apartment availability in both counties is at an all-time low of 2 per cent. In some apartment complexes the occupancy rate is 100 per cent. Ever since the Internet came on the scene and the dotcom mania swept the valley, housing prices have gone through the roof.

While the housing crunch in Silicon Valley and the surrounding neighbourhoods has worsened in the last couple of years, apartment renters were somewhat spared the dramatic increase in rents that house owners had become familiar with in the past year. According to a report published by the San Jose Mercury News, in the past couple of months local landlords in Silicon Valley have steeply increased the rent. In some cases, the hike borders on 40 per cent. It is cheaper to rent a one-bedroom apartment in Manhattan than to rent one in San Francisco, Palo Alto or Menlo Park.

The increase in rent is a direct byproduct of the red-hot economy that shows no sign of slowing down despite six interest-rate hikes by the Federal Reserve Board this year. The rates were hiked to cool the economy and keep prices in check.

According to a report released last week by the California Association of Realtors, Californians are feeling the squeeze in the housing market. Housing affordability in San Mateo and Santa Clara counties is at 12 per cent while nationally the affordability index is 52 per cent. According to one report, in the last seven years, about 250,000 jobs have been created in the Valley, but less than 50,000 homes were built in this period.

Unni, 29, and Lakshmi Nair, 27, both engineers, say they cannot think of buying a house in the near future. Instead, like many others, they live in a nondescript apartment in Sunnyvale, Santa Clara County. Sunnyvale is a suburban community of 130,000 people in the heart of the booming dotcom universe. The couple currently lives in a 600 square foot one-bedroom apartment that does not have enough storage space and has a tiny kitchen and dining space.

"We don't have a built-in microwave nor a washer and dryer in the apartment and yet, in the past two months, we have got notices of two rent increases!" Lakshmi says indignantly.

The first hike came in May when their rent was increased from $ 1,150 to $ 1,495. A month later, in mid-June, they got another notice saying their rent was up again, this time to $ 1,850.

Like many others, they are debating whether to continue staying in the same apartment or start hunting for a new one. And, like many other renters, they will soon realize that they have a Hobson's choice and may be better off staying where they are.

"Not everyone in Silicon Valley is a millionaire and not every start-up becomes a blue chip. There are a lot of ordinary folks like us who find it hard to keep up with this spiralling cost of living in the valley," Lakshmi says.

"Reminds me of my days in Bombay," says Unni. "To me, the whole thing is based on a false notion that software engineers are paid very high, and hence they have to be squeezed of every little drop."

Joseph Miller, a retired antique dealer, moved from the bustling Valley to Monterey Peninsula, located south of San Jose. He says people are paying exorbitant rates for their new homes, but do not have enough money to furnish them. Consequently, many new house-owners live in sprawling homes but with minimum furniture.

Cities like Palo Alto now find it hard to provide affordable housing to essential staff like teachers and nurses. Last week, Palo Alto's city planners proposed to clear out whole blocks of practising medical professional offices on Welch Road near Stanford University. They felt this would create space for affordable housing.

Their proposal has set off a fierce debate within the community. Adding fuel to the fire was Stanford University's announcement last week to wipe out the first hole of its historic 70-year-old golf course to make room for affordable housing. Many Stanford alumni and golfers, including Tiger Woods, have protested against the move.

One result of rent hikes is that teachers and nurses, who are paid less, are leaving the area, creating a shortage of essential staff. To stem the exodus, hi-tech companies like Intel are stepping in to help. For instance, last month Intel Corp and the Santa Clara Unified School District unveiled a new mortgage assistance fund to retain schoolteachers by making it easier for them to buy houses. The average salary of a schoolteacher in Santa Clara County is less than $ 40,000 a year.

Once referred to as the Valley of Heart's Delight, Silicon Valley is now a real estate nightmare.

(Names have been changed to protect identities).

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