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The Care and Feeding of a Tech Boom

This time the tech explosion doesn't have to end in tears. How one industry's growth can benefit us all.*

 *And not just the kids with Google Glass.

The critics’ larger error is their contention that tech companies and tech workers are in some way opposed to—and even actively seek to crush—the cultural values that characterize the Bay Area. In fact, just the opposite is true. Far from trying to exist apart from the cities that harbor them, Google, Facebook, Apple, and other local giants see their proximity to the local culture as their greatest employee perk. They’ve all absorbed the idea—first advocated by the urban theorist Richard Florida—that tech workers are part of a modern day creative class that is attracted to and thrives in bohemian, urban cultures like San Francisco’s. That attitude explains Yahoo’s recent big expansion into the San Francisco Chronicle building in SoMa and Google’s plan to build out its huge San Francisco office.

But an even clearer sign that the tech industry depends on the vitality of the city is the fact that startups keep setting up shop here. The Atlantic Cities recently analyzed the distribution of venture capital investments across the Bay Area’s zip codes and found that the San Francisco metro area now receives nearly 70 percent more funding than the Peninsula. Rather than turning San Francisco into a mere bedroom community for the South Bay, the new tech economy is actually dispensing with corporate shuttles and putting down roots in the city itself, where its workers really want to live. These are not barbarians at our gates—these are people whose values largely mirror those of the city dwellers who arrived before them.

In August, in response to increased police reports of people sleeping in their cars (both temporary campers like Allred and the involuntarily, chronically homeless), the Palo Alto city council voted to ban vehicle habitation. The move typified the small mindedness that characterizes much of our civic response to the rising tech economy. A more far-reaching approach might have involved the creation of community centers and low-cost housing units aimed at both poor residents and “bootstrapping” entrepreneurs; or the encouragement of coworking spaces that allowed for sleeping in; or some other plan that recognized that we can’t—and shouldn’t want to—keep passionate entrepreneurs like Austen Allred away from our towns and cities. But bubble-fearing myopia pervades the political and development process across the Bay Area. Because we believe that the boom will end soon, we make few provisions for the possibility that its effects will be with us indefinitely.

Nowhere is this more apparent than in the battles over housing in San Francisco. In 2011, only 269 new housing units were built in the city, a historic low. Since then there has been a remarkable upswing, with construction of more than 4,200 new units beginning in 2012, and the approval of 1,200 more units in 2013. But even if building reaches new peaks, few experts believe that we will be able to construct enough housing to satisfy demand. Over the last 20 years, San Francisco has added an average of 1,500 new housing units per year— to keep up with demand, we should have built two or three times that many. The inevitable result is a matter of high school economics: With too few apartments and too many people, prices keep going up.

“That didn’t have to happen,” says Enrico Moretti, a UC Berkeley professor whose book, The New Geography of Jobs, argues that restrictive zoning and land-use policies are a prime reason for San Francisco’s housing affordability crisis. He likes to cite a study by economists at the University of Pennsylvania’s Wharton School of Business, which found that of nearly 2,500 municipal areas across the country, San Francisco is the most restrictive large city of all. That’s no surprise to anyone who follows local politics, where every new development is subject to endless lawsuits, petitions, and NIMBY-funded opposition.

“San Francisco is a very expensive place to live. The only way you’re going to make it affordable for newcomers is by building more units or by building smaller units,” argues Patrick Kennedy, the developer whose effort to build 225-square-foot micro-apartments in San Francisco provoked prolonged debates and protests this spring. He was shocked by the level of opposition to his plan. “You have to bear in mind,” he says, “that San Francisco has thousands of single-occupancy hotel [units] that are less than 100 square feet, and yet people were attacking ours as a threat.”

The arguments of the micro-apartment foes echoed those voiced by opponents of new developments in general. They were concerned that the units, at more than $1,600 a month, would bring gentrifying rich people to low-income areas and price out the locals. But Moretti points out that delaying development induces its own sort of gentrification. In the absence of a few hundred new high-end condos in the Mission, he says, wealthy newcomers will bid up rents on the existing stock of apartments in the area—again pricing out the locals. He points to a comparable city, Seattle, as an example of the salutary effects of adding housing. In the last five years, Seattle saw higher employment growth than San Francisco, but rents rose 31 percent less. That’s because, in response to rising demand, developers in Seattle built more places to live. “At any level of demand, adding more units will only help,” Moretti says.

For a contrary view, I call Peter Cohen, executive director of the San Francisco Council of Community Housing Organizations and one of the city’s most fervent opponents of new development. Cohen is a patient fellow, and he generously devotes more than an hour to walking me through his worldview. “What doesn’t work in San Francisco is this miraculous idea of increased supply somehow having an impact on pricing,” he says. The conviction that adding more units will significantly impact prices “is a belief system—it really is this ideological belief that has no basis in fact in San Francisco.” Supply-demand dynamics don’t work here, Cohen argues, primarily because demand for real estate in the city is simply too high to ever be satisfied. “It’s incredibly prized, and we’re incredibly land constrained,” he says, adding that if we tried to even approach the level of demand, we’d have to build so many units that we would fundamentally change the character of the city in ways that we would find intolerable.

As I said, we spend an hour talking. And yet, when I hang up, I still feel like an idiot because I just can’t understand the rationale behind Cohen’s approach. Even if building more units couldn’t satisfy all demand, it would satisfy some—so aren’t we better off trying? And why does it have to be true that even approaching the level of demand would be disastrous? Aren’t there places in the city that could accommodate taller, denser, more populous buildings? In San Francisco, 80 percent of new housing is being constructed in 20 percent of the city, mainly in SoMa and the southeastern neighborhoods. I understand the impulse to preserve the charms of every corner of San Francisco. But could it be true that there’s no place for big new buildings across four-fifths of a 47-square-mile area?

As a civic culture, we can do better than spend time on these irrational fights. If San Francisco were to truly embrace its destiny as a capital of the new economy, we would realize that we are woefully over matched by other world capitals in housing capacity, transportation infrastructure, and other civic assets. It’s not necessary to mimic New York or Hong Kong to work our way out of this problem—we don’t need to become a dense, subway packed, faceless urban metropolis. But we could make dramatic changes that would increase housing stock. For instance, allowing a significant increase in the number of tall, dense apartment buildings along mass transit lines—along Muni lines, or in parts of the Mission— would be a big change, but it wouldn’t turn San Francisco into an alien landscape. “I don’t understand why it’s not a hair-on-fire priority to do this,” says Tim Colen, executive director of the developer-friendly San Francisco Housing Action Coalition. “I don’t see anything that’s going to increase the production of middle-income and workforce housing. If we don’t do this, we’re destined to be a luxury resort—an urban version of Carmel.”

Can we avoid that fate? My wife and I are in our 30s, and we’ve lived in the Bay Area all our adult lives. Between us, we’ve crossed the region, spending time in the East Bay and San Francisco before settling in Palo Alto, my wife’s hometown, where we’re raising two kids. We both have jobs connected to the tech industry—I write about the business for the Wall Street Journal, and my wife, a doctor, works at a biotech firm. Together we make more money than we ever imagined, more money than most people in our professions make elsewhere in the country. Even so, we’re fairly sure that we don’t make enough to buy a house (the median sale price in our area is $1.7 million, and it’s racing up at a double digit annual percentage)—at least not anytime soon. After paying for rent, childcare, and other expenses, we hardly feel wealthy. More than once a month, I wonder if we’re insane to live here. I wonder why we don’t wise up and leave.

Then I talk to a 23-year-old who’s living in his car to get his foot in the door, and I realize that leaving this area would be the truly insane thing to do. Over the next decade, we’ll realize that the Bay Area has done something better than find the next great seam of gold in our hills. The problem with gold rushes is that the gold runs out. But in our complex network of innovation, we’ve found a way to turn a multitude of industries into gold. We’ve found alchemy. Now, we just have to make sure that we aren’t consumed by its fires.


Originally published in the October 2013 issue of San Francisco

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