A San Francisco Techie's Rebuttal to The Gentrification Mudslinging

Yesterday the meagre 21% of San Franciscans who voted in the city's small off-year election rejected a proposed housing development on the Embarcadero (8 Washington) and now everyone is in a tizzy about the long-existing San Francisco housing crisis.

Perhaps because San Francisco is one of the only remaining boom towns in our struggling global economy, we have had an increasing amount of attention focused on the issues surrounding development and gentrification, so much so that even Al Jazeera is talking about it (and these guys too: Reuters, SF Chron, LA Times).

The blame for this housing crisis is consistently lobbed straight at the evil gentrification enacted by the soulless and faceless "tech millionaires" that we keep hearing so much about. Someone is so sure that tech millionaires are at the root of San Francisco's problem that there is an anti-gentrification protest scheduled for the Twitter IPO day and of course, there was that pinata of the Google bus that angry hipster residents of the Mission beat up publicly last May.

After sitting silently, listening to news commentators, politicians, and "activist citizens" share their opinions about the unquestioned source of this crisis - the "tech boom" - I have had enough.

As a native Californian, a democratic, creative and analytical music major who went to college on a scholarship and has been employed by the "tech boom" for basically my entire career, I need to clear the air and put some apparently unknown facts on the table because until we can move on from this finger-pointing, scapegoating argument that has insinuated itself into our city's dialogue, we are not going to be able to create a solution.

So, without further ado, here are my top three considerations from the point of view of a "techie" to put before the citizenry of my fine city, particularly the ones who are unhappy with the fact that I live here:

1) Who we actually are - apparently not who you think we are!

Firstly we are not evil millionaires who swim in pools of money in our penthouses. In fact, the vast majority of us are not millionaires at all (see point number 2). But the tone of the anti-tech argument isn't just about the money, it is about certain assumptions of who tech people are and what they mean for the larger San Francisco community. 

One statement in particular drives me absolutely nuts: "Techies are taking away from the city's diversity." (There is a quote at the end of this New York Times article that makes me steaming mad). In the quote the person is saying, "we don't want 'that kind of diversity'." Which begs the question, is one form of diversity better than another?

Clearly there are varying definitions of diversity, so let's talk about a few common ones and this incorrect, misguided assertion that tech-employed people are not diverse.

      1) Racial & Ethnic - most of the people I know in the tech industry are not white guys. There are people of a very wide range of races and ethnicities, certainly leaning more heavily on the East and South Asian side of the globe than average, but still encompassing great global diversity. I saw more diversity walking around the Google campus than I see walking down Market Street today, so clearly there is not a 1:1 relationship between tech jobs and a lack of diversity. Therefore, there must be some disconnect about the definition of diversity. Are we going to start to argue that some kinds of diversity are better than others, that the diverse people from India (where more than 1,000 languages are spoken) and China, don't count as much as other groups towards our mental image of what diversity means? Is it that because tech employees are highly educated, somehow their diversity doesn't count as much as someone who has less education? When we go down that path, we start to sound dangerously similar to the same judgements that have always plagued America, ever since its beginnings, in which we decide arbitrarily that one group is better than another, "those Irish are a real problem, but let in the Scandinavians..." and I don't like it one bit. The nation's educational crisis that has resulted in few Americans of any race or ethnicity being qualified for the most complicated tech jobs is another issue, and hating on the tech industry for providing white-collar employment that doesn't involve crashing the global financial system is counter-productive on so many levels.

        2) Diversity of interest and creativity - there seems to be some assumption that people who make their livings in the tech industry are somehow one-dimensionally focused on engineering or some other mysterious officey, non-artistic endeavor...An assumption that by having too many techies, there won't be enough room for the bohemian artists and musicians in the city. I have news for you - the tech industry is what allows us to live in the city. I have a music degree. I would love to make my living as a performer but that isn't a realistic career path for most, and it has nothing to do with the tech boom. The fact that classical music is drying up as a genre and that opera singers no longer wear mink stoles and cater to adoring millions has absolutely nothing to do with the tech industry's location in San Francisco. It is a reality of the modern world. Another reality is that many thousands of talented, artistic, creative people go work for tech companies (and many other professional jobs) because their skills provide unique value within the tech world - they understand teamwork, push themselves to create things that are valuable and beautiful at the same time, and they know from experience that if they don't hit a performance deadline, the failure will public and unpleasant -> all skills very useful across a wide range of professions, especially in the tech industry. I host a monthly music salon at my house where engineers, lawyers, teachers, journalists, bohemians and all sorts of other professionals come together and play music. Just because we make our living doing something else does not mean that we are less diverse, that our interests don't matter as much, and that our music isn't as meaningful. 

        3) Economic diversity - the pie isn't finite. When new shops and restaurants go in on Valencia, new jobs are made. Chefs can achieve their non-tech-industry creative dreams, sous chefs and dishwashers can get employment, and every resident of the city benefits from increased choices and decreased crime rates. Are some of the restaurants on Valencia overpriced? Absolutely. But the ecosystem that was fanned by the economic development from the tech boom has created a renaissance of new choices across price ranges and across industries. At Limon Rotisserie on Valencia and South Van Ness you can have a delicious, filling, fancy dinner for two for $20, you can't even say that in cheaper Sacramento. Economic development brings diversity and supports creative endeavors. Does this mean that some people won't be lost in the shuffle? Of course not, but think of all the people who have evolved and blossomed in this new economy, lots and lots of people who do not directly work for the tech industry. It is a common misconception that because someone makes $1 that somehow $1 is removed from the system somewhere else - that's not how it works. It's not a finite pie, but from the dialogue you would certainly believe it. Innovation and growth make the pie bigger and everyone wins. Turning the conversation into an "us versus them" mentality is detrimental to all, because it takes the focus away from the real opportunity that exists for everyone to benefit. 

2) We aren't all that rich.

I have to address this primary misconception.

Yes, there are the Sheryl Sandbergs, Mark Zuckerbergs and Marissa Mayers of the world. There always have been and there always will be. The only difference between them and their predecessors is that they manage internet companies instead of car factories, newspapers or steel manufacturing. Through some combination of luck and skill they made themselves a ton of money. But guess what, there aren't that many people in this boat!

I worked at Google and I have tons of friends who work at Facebook and Twitter and I can report, without a doubt, that most people who work for these companies are not millionaires. They can't afford to pay $3,500 to rent a one bedroom any more than any other average professional in the city can.

People seem to think that anyone who works for a tech company has tons of stock and therefore becomes a lottery-esque millionaire the moment of the IPO. The truth is, unless you're senior in a core department and/or started very early on in the company's history, then you're not going to be getting a huge piece of that action. The news loves the stories about the random Google chef who made millions, but this is news because it is the exception, not the rule. 

I know people who were pre-IPO at Google in the sales organization who hardly made more than a few months extra salary from their options. Had they kept their stock until it hit the $1,000 mark, they probably would have done better, but most people don't. They have to cash it in before it hits its prime to pay for housing...average housing...that same unreasonably high average housing that hurts everyone who is trying to live in the city on a modest <$100k salary. Lots and lots of people who work for tech companies make less than $100k. Many make less than $50k, especially young people who are not engineers, many of whom are using their Humanities, Social Sciences, Culinary and Art School degrees to build careers in the vast non-engineering sides of these companies. Those people you see waiting for the Google bus? They are taking a bus for a reason, and it's generally not because they have a Porsche parked in their garage at home. 

In order for the Twitter IPO to make instant millionaires of its employees, the employees will have to have lots of stock and will then have to sell it to acquire the money to buy an expensive condo. In most cases, people don't get money, until they sell their stock. So while there are some big winners in these IPOs, especially the senior people, the very original employees, and the bankers and lawyers who process it, the average tech employee is often not any better off, and in many cases is actually worse off than their investment banking/lawyering/nursing and similar other professional counterparts who no one seems to be blaming for this mess. Not to mention that many, many tech companies go bust all the time. Tech employees live with an uncertainty that is very uncommon amongst other similarly educated professions like law and medicine. But, they do have ping pong tables, so their lives must be amazing...

Let's do a little math about this Twitter IPO, since people are so upset about it. They currently have a total of 2,300 employees. They grew quickly leading up to the IPO, which means that many people squeaked in right before the bell, and therefore, likely did not get huge amounts of stock. The "average" employee stats, btw, are obviously misleading, because the few people at the top are swaying that stat, median would clearly be a better measure. But even if half of the employees became instant millionaires, the sum of the unit stock in these new "gentrified" buildings still exceeds the number of potential customers. One Rincon Hill alone has over 700 units. The rejected Washington 8 was to have 134 units, Linea on Market has 115 units, and so on. So, who are the tech millionaires who are going to buy these condos or pay these astronomical rents?

Why do the numerous high-end condo and apartment complexes popping up in SOMA, the Embarcadero and Upper Market, which are serving as beacons of resentment in the anti-gentrification argument, seem to think that they have an endless supply of people who can and will pay $5,000-$8,000 per month or $2-$5 million (+ high HOAs) for a two bedroom apartment? I certainly can't and the few people I know who can still wouldn't.

Of the people I know who can afford that price range, none of whom made their money in the tech industry, btw, all would rather buy awesome houses in Pacific Heights, Eureka Valley or Ashbury Heights with that money. You can still buy a massive, modern, fantastic-view, walkable, free-standing house in a prime neighborhood for $2 million (check out this current 3,000 sq foot monster in Eureka Valley on the market right now for $1.95 million). So why would anyone spend that kind of money to buy a generic condo next to the Market Safeway drug-dealing centrale? Maybe someone with unique taste would, but hundreds of people? Because that's how many condo units are going up with these expectations - hundreds. It doesn't make sense - there is an assumption about customer-base and price that is off.

So, if there aren't actually enough tech millionaires to buy all of the speculated luxury condos at the insanely high prices used by the developers to woo the city officials into their camps based on projected tax revenue, then it sounds a lot like there is some serious real estate development speculation going on... and if we're not careful, the bottom is going to come falling out of that before a major earthquake shakes it out, and that will be good for no one.

3) If we're going to talk about "haves" and "have nots" we must talk about rent control.

I recently went to a house-party of a friend who works in the tech industry. He lives in a small one-bedroom apartment where he pays over $2,000 in rent, a very large percent of his personal income. During the party, his neighbors, who have lived in their rent-controlled unit since the early 1980's invited us over to view their art collection. Inside their tiny unit was a treasure trove straight out of the Arabian nights filled with art, museum pieces and enormous sparkling geodes (I'm not making this up). At some point, they had bought out an art gallery that was going out of business. These artists had so much disposable income, due to their extremely low rent-controlled rent, that they could afford to buy the entire stock of an art gallery. The art they owned was so valuable that they were in talks with a major museum to sell the collection. This, on the income of two bohemian artists, but with the help of one important detail - rent control. When they sell the collection and become the official millionaires that by tech definitions they already are (since anyone who works for Twitter and holds stock "must be a millionaire"...), they will continue to pay their significantly discounted rent...until the building collapses or they die.

This type of disposable income is completely foreign to practically any person who has tried to move to the city in the last decade, including the vast majority of tech people, and it represents an important side to the argument that conveniently gets brushed over as news of increased evictions outrages the democratic citizenry. Do I think that these nice people should be evicted? Of course not. If I had a rent-controlled apartment in SF, I'd do almost anything to keep it too (especially vote...), and I'd be outraged at the idea that someone could take it away from me. But if we are going to start talking about fairness and unanticipated economic consequences, the extreme market conditions that rent control has created in San Francisco have to be addressed.

It is not sustainable for massive numbers of tenants to pay a small percent of market rate for their apartments, and in my humble opinion, it is not fair. (For some imagery, check out this Bold Italic article profiling certain rent controlled apartments and prices).

Is it fair for a landlord to jack up the price of your rent by huge percentages each year? Absolutely not. But there is a middle ground here that everyone seems to be ignoring.

It is also not sustainable for anyone in the ecosystem - new tenants, old tenants and landlords - for a significant % of the city's residents to be paying vastly below the market rate.

Unsustainable for new tenants, aka anyone who doesn't have an old rent-controlled apartment, including people who work for tech companies:

Why should any person who wants to move to the city, just as people have since it was founded, have to pay 3-5x the amount (or more) for the same exact apartment layout as their neighbors? Most new residents end up spending an unsustainable % of their income (many of them over 35% of it) on housing, while their neighbors collect art with the very high % of their personal income that they get to keep thanks to their severely below-market-value housing. There is an added long term problem here, as these young professionals struggle to save anything against their high housing costs while not getting access to a pension or other reasonable retirement portfolio like many of their elder neighbors also enjoy. It's a tough, tough world for the non-rent-controlled person, whether they work for a tech company or not. But they don't have a choice, they, like everybody else, have to figure out how to live in the city on a salary that cannot actually afford it.

Unsustainable for landlords, including the ones who aren't innately evil:

To take the side of the evil landlord for a moment - what exactly are they supposed to do when the rent that they are paid, based on the currency and market value in 1978 (+ a miniscule % increase per year), isn't even enough to cover the expenses of keeping the building up? Should they act like a charity and dump money into improving a building that they will never see the return on investment on because it is illegal for them to kick out the residents? Landlords can't even sell certain apartment buildings because rent control makes it so unprofitable to maintain them that no one wants to buy them.

In order to manage this situation, and make a sustainable business, they do several important things that are bad for tenants and for the city in general:

            1) They keep empty housing stock. In 2011, there were over 30,000 empty housing units in San Francisco. I have seen estimates that now it could be as high as 50,000. Rent control is so unsustainable, that landlords believe it is an appropriate business strategy to keep vacated units empty, sometimes for years, until all of the legacy rent-controlled residents move out or die so that they can finally update and re-rent the units at "market rates." This creates a false lack of supply that pushes the "market prices" higher than they should be.

            2) They charge really high new rents to plan for the future. For any building built before 1978, they know that they can't raise a tenant's rent more than a tiny % every year, so they set a price for an open unit that they believe will be sustainable in the event that someone lives there, basking in rent control, for the next 20 years. This means that while thousands of apartments sit empty and thousands of others sit full with significantly below market value rents, the rest of the stock is expected to balance the books by contributing enough revenue to cover those losses. Non rent-controlled renters in San Francisco are therefore basically paying to cover the entire cost of the city's rent-controlled revenue loss. No wonder "market rates" are so damn expensive.

            3) They let buildings become unsafe and generally crappy. Why would they pay to improve the units when they can't even break even? And so, like any reasonable business, they do not. They squeak by with the absolute minimum allowed by law, in some cases letting buildings crumble to the point that they need to be completely razed, because there is absolutely no way to regain the money that they invest. It's not mean, they just don't have the money. Would you pay for random people to improve their homes when you don't get anything in return?

           4) They evict people. It's sad, sometimes it's mean, but when they can, they evict people. There are very strict laws about who can be evicted, how, and how much they have to be compensated. So, when landlords have the opportunity, say, when a 10-unit building is empty except for one last remaining renter and they can finally update it, they take the opportunity. Maybe it's unfair. But was it really fair for that person to spend in one year what their neighbor spent in one month? It is this inequality and economic mess that has created a situation in which evictions are positive for landlords. Think about it - they have to hire lawyers, do all sorts of paperwork, jump through hoops. They don't do it because they're mean - they do it because they need to make their business work.

Unsustainable for the people who enjoy rent control:

Evictions suck. Living in collapsing buildings with 30-year old appliances suck. And, when they are forced out of their rent-controlled haven or decide to consider another neighborhood, they are faced with the same inflated market prices as the rest of us. No wonder housing is totally unaffordable for lower and middle income people - the market is unsustainable. But before you go and blame scores of tech millionaires who don't exist, you must understand that this market situation is bad for everyone, and that rent control plays a huge role in that unsustainability - tech boom or not.

To be clear, I'm not actually advocating that we eliminate rent control completely. Personally, I suggest we reduce its presence in the market over time by:

1) Instituting updated restrictions to all buildings, including those built after 1978 that address the primary issue that was a problem in 1978 and still is - that landlords can't arbitrarily raise rents by astronomical amounts all the time. This should, however, be a sustainable, balanced and forward-thinking set of restrictions, not the mess that we started in 1978 and that only applies to a % of the population.

2) Reducing the burden of the existing rent control population by phasing it out through attrition - as people move out of rent-controlled apartments, they become subject to the new rules, not the 1978 rules, and transferring rent control legacies is eliminated.

Now, whether our city could actually institute an idea like this without it degenerating into a special-interest flooded extravaganza of corruption is another issue, but in my theoretical world, I believe that this would work. 

Conclusions:

I'd like to bring this back to the hot topic of the day, the debacle of 8 Washington.

Yesterday, San Francisco voters said no to a luxury housing development that had been "in the works" for 7 years, that had somehow managed to gain an exemption from the city to allow it to exceed height restrictions for its 134 condos, and that supposedly expected prices of up to $5 million per unit. The city was drooling over the $350 million in projected tax revenue and the $11 million "donation" to the affordable housing fund, so much so that Mayor Ed Lee participated actively in campaigning for it.

The campaign against the development, "No wall on the waterfront," proposed an apocalyptic vision of Miami-Beach-esque condos blocking the waterfront, creating a physical separation between the "rich" and "everyone else" that struck an emotional and symbolic nerve in many people's stewing discomfort with this larger housing crisis.

But anytime you want truth, follow the money, and when you look at the facts of even this small example, this "us versus them" argument turns out to be a smokescreen for a development battle amongst a small percent of the 1% who skillfully manipulated the public's emotions about this very complicated, very difficult-to-fix issue.

It turns out that the vast majority of the money that paid for the "No Wall on the Waterfront" campaign came primarily from the rich developers and residents in adjacent buildings who didn't want their views to be blocked or their private tennis club demolished (Source: LA Times).

So what it really comes down to is that Simon Snellgrove, the illustrious developer who is clearly a Slytherin based on his name, shouldn't have asked for that height exemption. What was he thinking? Was it a hubristic belief that he could sneak through the back door until it was too late? Could he not have kept his request within the law and avoided this mess? Could he not have offered more of a public good with his proposal that would have made voters feel like the "public" services in the proposal were valuable and sufficient instead of a slap in the face? 

Someone needs to ask Simon and Mayor Lee, what else was going on that made them believe that the project must have this illegal height - was it the financial models that assumed 100 Twitter millionaire owners in order to make the investment profitable? 

Somewhere, within the truth of what happened in this debacle is the truth of what's behind the real San Francisco housing crisis, and the sooner we can move forward from scapegoating our tech-industry neighbors, the sooner we can fix it, and we'd better. It might already be too late.