Santa Clara County Assessor Larry Stone recently met with Silicon Valley Realtors and shared his insights on California and Silicon Valley's economy and real estate market. "California is one of the nation's economic powerhouses," Stone said. "With high incomes, high economic output, and globally significant industries, California remains the fifth-largest economy in the world, contributing 14% to the nation's GDP."
While Stone maintains his optimism about the long-term future, he's particularly concerned about the state's contracting labor supply and drop in population. Stone mentioned since 2021, California's employment has grown a meager 2.1% compared to 4.2% nationwide. The state's labor force has declined by 197,000 workers, driven largely by the serious housing shortage, the retirement of aging workers, and to some degree the exit of tech workers from Silicon Valley. He believes their leaving is not a crisis but acknowledged it is disturbing as those who left took $29 billion of taxable income with them, compared to the taxable income new Californians brought to the state, causing a 30% reduction in taxable income.
"California's employment growth trails the nation. Silicon Valley's labor force is the lowest since June 2022," said Stone.
Stone attributes the state's low population growth to Californians moving to Texas and Arizona, fewer people coming to California and Silicon Valley, an all-time low birth rate, a rise in deaths, and reduced immigration. Contrary to the Trump administration's stance, Stone stressed California's economy relies on immigration. "Real immigration reform allowing increased legal immigration combined with robotics and AI is the only solution to meet our future workforce demands. Trump's anti-immigration posture will come at a significant cost to Silicon Valley and California employment. California is a large, diverse economy. That diversity is a strength because it creates a broader economic base."
Stone noted the past two years has been the most unaffordable time to purchase a home in nearly 50 years. Multiple buyers for fewer homes for sale caused prices to increase 6.6% to $2.1 million in Santa Clara County. Homes selling for more than $5 million increased 18.5%. Bay Area home sales increased 14% and condominiums were up 29% last year.
"California's housing crisis is more a supply problem than an affordability problem," he remarked.
As a consequence of high home prices, Stone indicated rent growth and robust demand are projected in 2025. However, high vacancy rates, declining rental rates, the absence of big leasing deals, and the continuation of hybrid and remote working have impacted the office and industrial markets. He indicated downtown San Jose's vacancy rate was 35% in the fourth quarter of 2024. San Jose has a 47% return-to-office rate, the lowest of the 35 major metropolitan areas.
"In my opinion, real improvement in office vacancy levels won't materialize before 2026," said Stone.
Despite these red flags, Stone assured Realtors that it's by far not doom and gloom for the region. Even as venture capital investment has slipped, he stressed 80% of tech research and development is based in Silicon Valley.
"Long term, I believe the outlook for the Silicon Valley economy is bright. Electric vehicles and battery technologies, artificial intelligence, and clean energy will keep Silicon Valley high on the list of economic success for some time to come. Silicon Valley's economy is structured to resist long-term declines in economic activity. Big tech has a special kind of resilience because innovation is the driving force behind our success," said Stone. "Ultimately, California's outlook for 2025 hinges on the performance of our tech giants, and the domestic and international policies of the Trump administration."
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Variations of this article have appeared in local area newspapers.
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