South Bay must build more housing for cutting-edge tech and AI jobs: expert

A view of downtown San Jose from one of the upper floors of The Fay, a 336-unit, 23-story housing tower at 10 East Reed Street next to South First Street in San Jose.

SAN JOSE — The South Bay must ditch empty office buildings and replace them with housing so the San Jose area can accommodate cutting-edge tech jobs such as artificial intelligence, a top economist says.

That was one of the assessments and recommendations from economist Christopher Thornberg during a recent presentation at the San Jose State University Economic Summit at the college’s downtown campus.

Wide-ranging efforts must be conducted to rezone existing office sites so they can be replaced by residential units, Thornberg, economist and founding partner with Beacon Economics, said.

“How do you make housing more affordable? You build more housing,” Thornberg said, urging San Jose and its neighboring suburbs to intensify efforts to rezone wide swaths of commercial properties so housing can sprout on those sites.

“You need to start taking down these office buildings and putting up apartments,” Thornberg said.

However, Thornberg said he prefers “adaptive reuse” of existing office buildings rather than projects that bulldoze office structures. Too much demolition could create “dead zones” in urban areas, he stated in a PowerPoint display that was part of his demonstration.

Thornberg also disagreed with assessments that California is locked in a doom loop characterized by an exodus of corporations and a flight of its residents to rivals such as Texas, Arizona and Florida.

“California is not dead yet,” Thornberg said. “California is doing just fine.”

The Beacon Economics co-founder asserts that the South Bay economy is also in good shape, but like California, must navigate past some hazards to remain robust.

“San Jose is still big in tech but housing and labor shortages are obstacles,” Thornberg said.

In his PowerPoint display, Thornberg listed a few observations about the South Bay economy:

— Labor and housing costs could erode the South Bay’s competitiveness.

— The South Bay needs to find ways to grow its labor pool as a way to attract entrepreneurs.

— Artificial intelligence is not by itself a game changer. AI must become integrated into the larger South Bay economy to start having an impact.

“AI is incredibly important, but AI is not going to rejuvenate the Bay Area by itself,” Thornberg said.

Tech jobs have slumped in the Bay Area since February 2020, which was the final month before state and local government agencies imposed wide-ranging business and office shutdowns to combat the spread of the coronavirus, according to estimates from Beacon Economics that Thornberg presented.

Over the approximately four years from February 2020 through April 2024, here’s how tech industry job totals changed in selected regions, according to the Beacon Economics estimates:

— South Bay tech job fell 1.3%

— East Bay slipped lower by 0.5%

— San Francisco-San Mateo metro, down 2.5%

— California, up 1.6%

— United States, up 4.5%

Some major Silicon Valley rivals posted gains in tech jobs that were double-digit increases over the same period. The Texas cities of Austin and Dallas, and the Alabama city of Huntsville all posted gains of more than 10%. Utah’s Salt Lake City and North Carolina’s Durham managed percent increases in job totals that were nearly double digits.

The boom periods of Silicon Valley’s boom-and-bust cycle have always been fueled in large measure by tech workers who are relatively new to the industry. Thornberg believes that’s why plenty of housing must be available for tech’s new workforces.

“Tech hubs are rejuvenated by young people coming into them,” Thornberg said. “Where are they going to live?”

While the South Bay economy is in good shape, Thornberg warned that the region’s housing crunch could impede future growth.

“The limited housing supply is preventing the hip new tech companies from locating here,” Thornberg said.

Despite the obstacles and difficulties, Thornberg believes the respective economies of the South Bay and California are both in good shape.

Thornberg added that a recession is not on the horizon for the South Bay, California, or nationwide. He predicted that the national economy should grow over the next year at an annual pace of 2% to 3%.

The San Jose region, Thornberg maintains, remains the globe’s primary creator of tech jobs, in Thornberg’s view.

“There is no doubt that San Jose remains a Cadillac economy,” Thornberg said. “This is still the center of the tech world.”