In the 1990s and early 2000s [it was] common knowledge that most Seattle-based startups had only two viable exit strategies: go public, or get acquired by Microsoft.

This led to a lopsided startup ecosystem, with a very small number of tech titans, and a large number of relatively tiny startups, with very little in between. …

The last 10 years have seen a sea-change in this dynamic in Seattle, caused by two forces.

The first part of the change has been the rise of a new breed of large Seattle-based tech companies – companies that are still smaller than the two local titans, Microsoft and Amazon, yet large enough to fill out the middle tier of the tech ecosystem.

This group includes public companies such as Expedia, Zillow, Tableau, and Zulily, as well as very large acquisitions such as PopCap Games, Isilon, Big Fish Games or Bluekai. Along with older companies such as Adobe and Real, the home-grown tech industry in Seattle now has a sizeable number of companies not only at the $100 billion valuation, but throughout the $10 billion, $1 billion, or $100 million valuation ranges. …

The second force has been the increasing appearance of Silicon Valley engineering offices in the Seattle metro area. Google was one of the first major Silicon Valley offices to open an engineering office in Seattle, and in fact Google now has two engineering offices – one downtown in Seattle, and one in the suburb of Kirkland, WA. …

A decade after Google set up shop in this city, Seattle has seen an explosion of Silicon Valley companies setting up their second engineering office. Seattle is now home to engineering offices for Google, Facebook, Apple, Twitter, Salesforce, eBay, Dropbox, Uber, SpaceX, Taser, Palantir, Groupon, Hulo, Electronic Arts, Yahoo!, Pivotal Labs and many others …

Seattle’s secret weapon: relatively cheap housing

That’s a striking list. Virtually all Silicon Valley tech giants have a Seattle wing. But at some point, the dynamic may change from Expedia and Zillow co-founder Rich Barton’s characterization of Seattle as the “blond, scruffy-haired little brother of the star quarterback (Silicon Valley).”

That’s because the Seattle area has a huge advantage: housing is relatively affordable. Finding affordable housing in California isn’t just a problem for poor people. Many well-paid professionals are unable to afford to buy their own homes and start families.

According to bizjournals.com, in 2013, the San Francisco Bay Area/Silicon Valley had the highest average salary ($111,885) for software engineers of any U.S. city. The Seattle area was second at $103,196 per year.

In San Francisco and Silicon Valley, that much money doesn’t get you much in the way of housing. The National Association of Realtors says the median cost of a home in San Jose/Santa Clara/Sunnyvale was $855,000 in the fourth quarter of 2014. In San Francisco/Oakland/Fremont, it was $742,900.

The housing outlook is grim for renters as well. A new Forbes magazine survey finds that the Bay Area and Silicon Valley have arguably the nation’s worst housing shortage, allowing landlords to constantly push up rents. The average monthly rent in the greater San Francisco area is now $2,802.

CA pols stick with same affordable-housing approach

A $100,000 salary buys a lot more creature comforts in the Seattle area.  The median cost of a single-family home in Seattle-Tacoma-Bellvue was $352,000 over the last three months of 2014. The average apartment rent in March was $1,615 in all locations within 10 miles of Seattle city limits.

In New York City, housing costs are also sky-high, and Mayor Bill de Blasio is heeding economists who say the best way to make homes and apartments more affordable is to increase housing stock. De Blasio wants to add 240,000 housing units.

In California, however, the politician who has focused most on the affordable-housing issue — Assembly Speaker Toni Atkins, D-San Diego — instead wants to ramp up the traditional California affordable-housing policy of having the government subsidize some homes. Atkins’ proposals haven’t focused on the regulatory reforms that developers say are the easiest way to spur more housing construction in the Golden State.

Corporations have been known to up and leave California for many reasons. Being able to retain your engineers and coders by guaranteeing them they will live in an area where they can afford the American dream of a single-family home would appear to be a powerful incentive for a company to move to Seattle, especially now that there is such a huge concentration of tech firms in the Seattle region.

High housing costs are the main reason that California has the nation’s highest poverty rate when cost of living is included. More than 23 percent of residents struggle to make ends meet compared with 14 percent of Americans.

One of the LAO’s most provocative findings got scant attention. It was that as high as housing costs already are relative to the nation, the disparity is probably going to get worse:

As we have discussed, a collection of barriers have prevented California’s housing developers from responding to high demand to live on California’s coast by building more housing there. Our analysis in this section suggests that these barriers have created a major disconnect between the demand for housing and its supply. Looking forward, there are many reasons to think this dynamic will continue.

Many of the primary factors that make California desirable — moderate weather, natural beauty, and coastal proximity of its major metros — are ongoing. At the same time, we see no signs that coastal community resistance to new housing construction is abating. In addition, many state and local policies that have slowed or stopped development in recent decades remain in effect today.

We therefore think that, in the absence of major policy changes, California’s trend of rapidly rising housing costs is very likely to continue in the future. … In our view, this major finding that demand for housing in California substantially exceeds supply should inform discussions and decision making regarding state and local government housing policies.

Much of the coverage of housing costs has focused on how they exacerbate poverty. The LAO report notes that low-income families in Los Angeles, for example, spent two-thirds of their money on housing alone.

But if the LAO is right and housing costs continue their rapid rise, this will push upper-middle-class families down into the middle class, and middle-class families into the working poor. The implication is that without commensurate increases in family income, higher housing costs are likely to drive state poverty even higher than the present 23 percent.