Google wants to build 20,000 homes. It may need more than $14 billion

A rendering of Google's North Bayshore campus which includes affordable housing. A rendering of Google's North Bayshore campus which includes affordable housing. Photo: Google Photo: Google Image 1 of / 4 Caption Close Google wants to build 20,000 homes. It may need more than $14 billion 1 / 4 Back to Gallery

Google has committed to a $1 billion plan that would help build 20,000 homes in the Bay Area over the next decade. But that round number represents the smallest of down payments on what has become the region’s thorniest problem.

A new apartment in the Bay Area costs about $700,000 to build, including land and fees, said Cynthia Parker, CEO of Bridge Housing, a major nonprofit developer in San Francisco. The price tag on 20,000 units could be more than $14 billion.

That would be a major chunk of Google’s cash on hand. Parent company Alphabet had $136.8 billion in revenue last year and reported $109.1 billion in reserves.

That said, the tech company’s balance sheet, combined with government subsidies and other financial sources, could lead to an unprecedented amount of new housing, according to experts. But Google faces a costly and byzantine process. Approval for new homes and offices in Mountain View, San Jose and Sunnyvale will take years, according to city officials.

Google’s plan includes $250 million to finance at least 5,000 units of affordable housing in the Bay Area. It did not specify sites, though Google told The Chronicle the homes would not necessarily be situated on land it already owns. Its commitment also involves getting land it owns worth $750 million rezoned for housing.

Google doesn’t plan to build the housing itself, and the homes would be available for nonemployees. The company said it’s already fielding interest from developers and is seeking new models around construction and financing to reduce costs.

Google also plans to buy existing affordable housing and keep rents low — similar to health care company Kaiser Permanente’s $5.2 million purchase to preserve 41 units in Oakland, as part of its $100 million housing and homelessness effort. Other tech giants including Facebook, Cisco and Microsoft are directly funding affordable housing. It’s a shift for companies that have focused on snapping up office space — and an indication that the housing crisis is becoming a barrier in hiring new talent.

Google’s investment, however, translates to only $50,000 for each of the 5,000 units it wants to finance — a small portion of what’s necessary, say affordable housing advocates.

“For $50,000 per home, what are they going to do? You can’t even get the materials for that,” said Amie Fishman, executive director of the Non-Profit Housing Association of Northern California, a policy group.

Government subsidies cover most of the funding for 100% affordable projects, which are usually reserved for renters making a fraction of the area median income. A federal program, the Low-Income Housing Tax Credit, is the biggest pot of money, and allows corporations like Google to fund affordable projects in exchange for a tax break. City and states also help, while the rest of the funding comes from traditional construction loans. Google could help fulfill those funding requirements.

Affordable as well as market-rate housing is getting increasingly difficult to build.

The region’s construction costs are rising as demand for new buildings from the booming tech sector meets a dire shortage of labor and a spike in steel prices related to the tariff wars.

Developers can swallow those costs on projects like luxury housing and large office buildings, which command high rents, said Carol Galante, faculty director of the Terner Center for Housing Innovation at UC Berkeley. Those projects also generate fees that help pay for affordable housing. But building a new affordable home costs almost as much as market-rate housing, while below-market rents make them hard to finance.

“The challenge is that in our high-cost environment in California, the subsidy that comes from that federal tax credit is not by itself enough to afford building the same kind of product, at the same kind of costs, as a market-rate project that’s charging five times more in rent,” Galante said. “Then, you need these other sources of local or philanthropic subsidies to ‘pencil out.’”

Bridge Housing’s Parker said Google could make a dent in construction by leasing land it owns to nonprofit developers for a minimal rate. Land costs account for $150,000 to $175,000 of each new unit of housing. “The cost of land has gone up considerably in the bay and the whole West Coast,” she said.

Judith Bell, vice president of programs at the San Francisco Foundation, wants more answers from Google: How will the dollars be deployed? Are these investments of actual dollars or loans at lower interest rates? Will Google partner with other established funds to make ends meet?

“This ends up being really complex and time-consuming work,” said Bell, whose group supplies low-interest loans to nonprofit developers of affordable homes, in addition to its other philanthropy. “Google could make it easier or harder depending on how it moves forward.”

Others want Google to stick to established programs.

“We don’t need another loan fund. We don’t need more bank partners,” Fishman said. By investing in the federal tax credit program, Google could make a direct impact without creating more work for developers, she said.

Google’s efforts coincide with its vast office expansion plans which, critics point out, will further raise demand for housing.

Photo: John Blanchard / The Chronicle

North of its Mountain View headquarters, Google has proposed 1.2 million square feet of new offices, or room for more than 7,000 employees at the North Bayshore area. It owns 58% of the land in the area.

Google also wants 5,700 new homes there, with 20% of them affordable — part of its 20,000-unit goal. More city approvals are required, and the first new buildings are expected to open starting in 2023.

“The city is pleased to see Google, with such a large Mountain View and Bay Area footprint, take an active role in addressing this regional challenge,” Mountain View Mayor Lisa Matichak said in a statement.

In San Jose, Google has a project in the works near Caltrain’s Diridon Station with offices for about 20,000 workers. The city previously sought 5,000 housing units in the area, with a goal of having 25% of them affordable. Google could build more than that but hasn’t filed a formal proposal.

In Sunnyvale, Google has spent more than $800 million on land in the Moffett Park area and has proposed major office projects. The city is studying the land for a potential rezoning, though no conclusions have been reached. A report to the City Council is expected by early 2021, said Jennifer Garnett, a city spokeswoman.

Even if Google reaches its goals, the Bay Area still needs much more housing. The Association of Bay Area Governments, a regional planning agency, calls for 187,990 new housing units from 2015 to 2023. With four years left, only a quarter of those homes have been permitted.

“Tech companies and businesses are all stepping up to meet the urgent need,” Fishman said. “There are ways to do that that will maximize impact, and there are ways to do that that won’t.”

Editor’s note: This story has been updated to include the correct cost of building 20,000 homes.

Roland Li and Melia Russell are San Francisco Chronicle staff writers. Email: roland.li@sfchronicle.com, melia.russell@sfchronicle.com Twitter: @rolandlisf, @meliarobin