The South Bay must build more housing for cutting-edge tech and AI jobs.

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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 along South First Street in San Jose.

SAN JOSE — The South Bay should ditch vacant office buildings and replace them with housing to bring cutting-edge tech jobs like artificial intelligence to the San Jose area, a top economist says.

That was one of the assessments and recommendations made by economist Christopher Thornburg during a recent presentation at the San Jose State University Economic Summit on the college's downtown campus.

Thornburg, an economist and founding partner at Beacon Economics, said extensive efforts should be made to rezone existing office sites to replace them with residential units.

“How do you make housing more affordable? You build more houses,” Thornburg said, urging San Jose and its neighboring suburbs to step up efforts to rezone large swaths of commercial property to accommodate those areas. But the houses could explode.

“You need to start tearing down these office buildings and building apartments,” Thornburg said.

However, Thornburg said he prefers “adaptive reuse” of existing office buildings rather than projects that bulldoze office structures. He said in a PowerPoint display that was part of his demonstration.

Thornburg also disagreed with assessments that California is locked in a doom loop characterized by the exodus of corporations and the 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 emphasizes that the South Bay's economy is in good shape, but like California's, some risks must be overcome to stay strong.

“San Jose is still big in technology but lack of housing and labor are barriers,” Thornburg said.

In his PowerPoint display, Thornburg made a few observations about the South Bay economy:

– Labor and housing costs could erode the competitiveness of the South Bay.

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

– Artificial intelligence itself is not a game changer. AI needs to integrate into the larger economy of the South Bay to start making an impact.

“AI is incredibly important, but AI will not automatically revitalize the Bay Area,” Thornburg said.

Beacon Economics estimates that tech jobs in the Bay Area have declined since February 2020, the last month that state and local government agencies enacted widespread business and office closings to combat the spread of the coronavirus. , presented by Thornburgh.

Here's how the total number of tech industry jobs in selected regions changed over the nearly four-year period from February 2020 to April 2024, according to Beacon Economics estimates:

– South Bay tech jobs fell 1.3 percent

– The East Bay fell 0.5 percent

– San Francisco-San Mateo metro, down 2.5 percent

– California, up 1.6 percent

– United States, up 4.5 percent

Some of Silicon Valley's biggest rivals enjoyed gains in tech jobs that saw double-digit growth over the same period. Austin and Dallas, Texas, and Huntsville, Alabama, all posted gains of more than 10 percent. Utah's Salt Lake City and North Carolina's Durham managed nearly double-digit percentage job growth.

The boom periods of Silicon Valley's boom-and-bust cycle have always been largely fueled by tech workers who are relatively new to the industry. That's why enough housing should be available for the new tech workforce, Thornburg believes.

“Tech hubs are rejuvenated because of the young people coming in,” Thornburg said. “Where are they going to live?”

While the South Bay's economy is in good shape, Thornburg warns that the region's housing shortage could hold back future growth.

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

Despite the obstacles and difficulties, Thornburg believes both the South Bay and California's respective economies are in good shape.

Thornburg added that a recession is not on the horizon in the South Bay, California or nationwide. He predicted that the national economy would grow at an annual rate of 2 percent to 3 percent next year.

The San Jose region, according to Thornburg, is the world's leading creator of tech jobs.

“There's no doubt that San Jose is a Cadillac economy,” Thornburg said. “It's still the center of the technological world.”

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