I'm not American so may not have this perfectly right but the Detroit of the past seems to be a good analogue to SV. Lots of well paid jobs in a single industry. When the eventual downturn occurs you don't want to be left with a ghost town.
Detroit is a ghost town, but the suburbs are fine. The story of Detroit is one of urban decay. Detroit's population has declined, but the metro area's population has been steadily growing. Detroit's downtown is not seeing a resurgence because there basically isn't one. It's a ton of 1950's low density housing stock.
And that housing stock overseen by a corrupt government that embezzled from the public, and a school board presided by a guy who seemingly can't write. It's a city whose politics are scarred by _multiple_ race riots.
In contrast, SV is a network of small suburban towns, all of which are happily constructing new office spaces but virtually no new housing. Rent prices are 3k USD a month, highest in the nation. An economic downturn shifts the local market from 'absurdly unaffordable' to 'merely very expensive'. And due to California's own political schemes, a permanent drop in housing prices would probably help local governments balance the books if it meant they could pay folks less while still taking in the same amount of tax revenues due to Prop 13.
CA voted in an effective freeze to property taxes back in the 1970s, with property tax increases being capped at 1% per year and the rate being transferable to your children. This has created a landed aristocracy in CA cities of those paying well less than the normal rate in taxes, badly distorting the market and local economies (no property tax, no services), resulting in lots of silly policy choices.
Detroit enjoyed ~3 generations of prosperity before declining. It would be silly to deny the opportunities provided by the tech industry and the wealth it generates to millions of people just because the area might eventually decline.
The lack of diversification in employment makes the residents as a whole more vulnerable to the next sector based bust (see dotcom crash).
If there is a larger supply of housing then more properties will be put on the market in such an event. This could exacerbate any fall in prices or result in a large number of abandoned properties which can be pretty damaging to a neighborhood.
We get a sort of similar effect here in Australia. A mine opens in the outback somewhere and prices rise rapidly in the nearest town(s). Then a whole heap of new housing gets built to meet the demand and make some profit. One day resource prices fall, the mines cut back on operations, and suddenly there is a housing oversupply and the whole local market falls pretty harshly.
If you were a local resident who lived there the entire time you would probably be feeling pretty shortchanged by the end.
The correct answer is probably to build some new housing supply but definitely not as much as the peak demands.
The correct answer is probably to build some new housing supply but definitely not as much as the peak demands.
Why is that? It doesn't change the fact that once the mines are gone, they're gone. The value of existing homeowner's investment has been preserved but nothing's been done to buffer the economy or help people pushed out of rentals. It's just transferring wealth to rentiers.
Diversifying the economy -- having an environment more encouraging to industry, not less -- is the right answer.
In the mining example I gave it's probably more clear cut than the SV case.
A whole heap of people are working high wage jobs in essentially the middle of nowhere. The local towns don't have the capacity to replace many lost jobs and aren't the ideal place for all of the now unemployed workers to end up. You don't want a whole heap of empty houses in an area with no jobs.
Diversifying the economy is definitely a step in the right direction and is likely more feasible in an area like SV. On the flipside you've got to be careful that the other industries are valuable in their own right and don't exist solely due to the rivers of money in the area.
I'm not American so may not have this perfectly right but the Detroit of the past seems to be a good analogue to SV. Lots of well paid jobs in a single industry. When the eventual downturn occurs you don't want to be left with a ghost town.