The Biotech Boom's Impact On Housing Prices Has Planners Looking To Industry For Solutions
In big cities across the U.S., tech-fueled economic growth has exacerbated a crushing housing shortage.
The huge growth in life sciences and the lab economy over the last two years has added to the pressure facing high-cost cities like Boston, San Francisco and San Diego — not to mention burgeoning hubs in the Sun Belt — and begun to change the calculus around how much responsibility the industry has to support a solution.
Rising biotech employment, with salaries soaring in tandem, provides sought-after talent with enough buying power to make an impact on the market itself. The frenzy for new lab developments around Boston, in particular, is said to be pushing out potential housing projects, since lab developers can pay top dollar for parcels and outbid apartment developers.
In an interview earlier this week, Boston Housing Chief Sheila Dillon told the Boston Business Journal that her office has hired consultants to look at the possibility of extracting higher linkage fees — a charge for market-rate development used to fund affordable housing production — for lab and life sciences development.
“We think we may be able to extract more from labs than more traditional commercial development,” Dillon said, going on to add that part of remaining a competitive city is being able to house the entire workforce. She failed to return a call for more details from Bisnow.
When asked for a comment, a spokesperson for MassBio, the state biotech business group, said, “it’s an issue we’re discussing with our membership but not one we’re ready to comment on.”
The perception of biotech as a contributor to local housing issues varies. In San Francisco, that narrative is less pronounced, or nonexistent, in large part because the industry is overshadowed by the larger tech industry, according to JLL North California Director of Research Alexander Quinn.
JLL tracks roughly 300M SF of office space in Northern California, the majority of which is traditional tech. Lab space in the region covers less than 30M SF — the scale just can’t match Silicon Valley.
But biotech’s boom in the Bay Area has certainly added to the number of wealthy renters and potential buyers impacting the market. Quinn said the average wage in the local life sciences industry is $215K. In the United States as a whole, the mean wage for life sciences is roughly $119K, nearly double the national average of $64K.
“Certain cities won’t be able to absorb that demand without noticing it,” he said. “For a smaller city, it could have a meaningful consequence on your housing prices.”
He sees South San Francisco, a small city of roughly 64,000, as an example of how the industry’s higher wages can start distorting local housing markets. Home to one of the nation’s largest biotech clusters, the city plays host to an expanding array of massive life sciences campuses, such as Kilroy Oyster Point, and is predicted to support 40,000 jobs by 2030.
It’s a booming sector that catapulted out of the last two years of the pandemic with even more momentum. But according to Ernesto Lucero, a South San Francisco economic development coordinator, the city’s traditional economy, built around warehouses and service industries, has been struggling and needed support during pandemic downturns, with workers stung by rising housing costs.
South San Francisco is expected to raise roughly $122M from its own commercial linkage fees over the next 15 years, mostly from biotech developments, which are charged $16.55 per SF. But the housing needs can’t wait.
“Our long-term workforce development goal is to create linkages for biotech jobs and opportunities for people to live close to their jobs,” Lucero said. “The high cost of real estate in the area is a challenge.”
It’s not merely top-ranked markets having these issues. In North Carolina’s Research Triangle, a budding site for biomanufacturing, the housing market is suffering from the same mix of low inventory and high prices hitting many other major cities. The median home sale price, $434,140, is up 25% in just the last year.
North Carolina Biotechnology Center Public Relations Director Jim Shamp said it’s an issue in every major life science environment: Housing pressures and a growing market are "like the old trope on love and marriage: You can’t have one without the other.”
“The Triangle will see major new projects from Google, Apple, Amgen, the list goes on,” he said. “Thousands of new jobs and billions in investment means high-paying jobs in tech and the life sciences, and that obviously creates an impact on housing costs in North Carolina.”
In Boston, the perception of biotech as a driver for a booming housing market is more widely understood. The issue isn’t new, and the city has been addressing its housing affordability challenge for a number of years, said Tim Reardon, the data services director for the Metropolitan Area Planning Council.
In addition to aggressive housing plans from previous Mayor Marty Walsh and recently elected Mayor Michelle Wu, a coalition of city leaders started the Metro Mayors Housing Initiative to begin looking at the issues as a regional challenge. It’s one that’s continually confounding leadership, and it is getting worse.
The entire state builds just 15,000 units a year, owing in large part to onerous zoning and municipal reluctance for multifamily homes in suburbs. A new regional initiative to zone for 344,000 as-of-right housing units in the region seeks to remedy the issue, but Reardon says getting projects through zoning and development approval has become more challenging, with “a lot of great policy ending up on the shoals of community opposition.”
“Our position is, there’s no way anybody will deal with it on their own,” Reardon said. “It remains to be seen how this new configuration of regional leadership will address this issue.”
Now may be the time to apply a more robust fee on biotech development to help tackle the affordable housing shortfall, Reardon said, echoing what Dillon said about the research around applying additional fees.
“The market is so strong, that now you actually have the leeway to apply those higher fees,” Reardon said. “There’s so much demand, it’s a good time to tax the market right.”
It remains to be seen how local governments might single out life sciences when it comes to paying more fees to help support affordable housing production. But tech could provide a possible model. According to Dennis Shea, the executive director of the Bipartisan Policy Center’s J. Ronald Terwilliger Center for Housing Policy, there have been moves by many companies to fund their own affordable housing initiatives, or create funds to support affordable housing developers.
“Clearly some large corporations are concerned, because many have made significant investments in affordable housing,” he said. “They recognize their workers need to find housing reasonably proximate to their workplace and their impact on the communities in which they operate is significant.”
Part of the answer could be simply shrinking their footprint. JLL’s Quinn said that he’s seeing an increasing number of firms in the Bay Area source their lab research elsewhere with contract research organizations. In high-priced markets, it can be challenging for lower-paid lab technicians and others to live close to work, and it can make sense to simply move the work to a market where it’s easier to find, and house, such workers.
Up-and-coming secondary and tertiary life sciences markets would be happy to welcome more startups, lab space and development.
Kyle E.G. Smith, recently hired as vice president of life sciences at Stream Realty Partners’ Atlanta office, said with Georgia Tech and Emory University, plus a lower (but also rapidly rising) cost of living, it’s “only a matter of time before the advantages of a place like Atlanta become clear."
“You’re able to justify the move because you don’t have to put as much money into lab real estate, which means you can reallocate dollars to the talent pool and attract talent, which has more of a finite supply,” he said. “Over the next 10 to 15 years, there’s going to be a big boom here, and affordability will drive people to think differently about their business model going forward.”
The development maxim about location is slightly different in life sciences, Quinn says: Lab real estate is about talent, talent, talent. And what firms look for is quality-of-life indicators for their hires, which can include housing affordability.
“When you think of how tech companies have dealt with this question, they often move certain divisions and types of work to less expensive markets,” Quinn said. “They’ve definitely realized the entire company doesn’t need to be concentrated in San Francisco.”