San Francisco’s New Disruption

The tech wealth transforming the West Coast city has unemployment down, evictions up and tempers flaring.

Protesters who blame tech wealth for San Francisco's soaring housing costs blockade a private shuttle filled with Google employees. Read more: San Francisco's New Disruption

Class tensions have settled over life in San Francisco like a dreary fog. Teachers, cooks and musicians are packing their bags as high-rises with two-bedroom apartments renting for $6,000 per month open their doors. Residents who have only a high school education are filing out of the city, while college graduates with more earning power are flooding in. African Americans now make up 6% of the population, half of the percentage in 1980. Longtime residents are worried that San Francisco is becoming a homogeneous haven for the rich, a concern facing other major metros across the U.S. “The question for cities like San Francisco and Seattle and Boston is, Can you continue to be a place that is accessible to people across parts of the income distribution?” says Alan Berube, a senior fellow at the Brookings Institution Metropolitan Policy Program. “The pressures of inequality are the here and now for cities.”

The friction is particularly acute in San Francisco, where the median household income of $73,000 is almost 50% higher than the U.S. average. A combination of exploding wealth and limited space has led to an affordability crisis. Much of the angst among the have-nots is directed toward the region’s booming tech sector, which is attracting well-paid workers who once settled around San Jose and now regard the City by the Bay as the only place to be. San Francisco is choosing the new Tech class over long-term residents, one protest flyer reads. SF for the people, not for Google! reads another. City leaders, meanwhile, are trying to make peace among the deep-rooted residents who made the neighborhoods what they are and the tech companies that are making the economy hum.

The signs of change are everywhere on Market Street, the grand but blighted artery running through the heart of the city. Graffiti and shuttered storefronts are followed by cafés offering $65 beers aged in Chianti barrels. Billboards promising quick check cashing give way to sleek ads for luxury apartments where residents can summon a valet via touchscreen to fetch their cars. Construction cranes swing through the sky above yet-to-be-built high-rises, as homeless people push their carts on the sidewalks below.

The 1,800-odd tech companies in San Francisco are doing wonders for the local economy, generating capital and funneling revenue into city coffers through their giant conferences, property taxes and hotel bills. And high-paid, high-skilled tech jobs are creating other jobs. Enrico Moretti, an economist at the University of California, Berkeley, analyzed about 10 million workers in 220 metro areas and estimated that every tech job ultimately supports five additional ones. Construction workers on Market, many hammering away on projects that broke ground after Twitter moved in, often eat at Sam’s Diner. Two years ago, owner Jeannie Kim says, the restaurant could have gotten by with one server on the floor. Now it has four. On the cycle goes. Today the city’s unemployment rate is 4.8%, about half what it was two years ago.

But this success has come at a cost. The place columnist Herb Caen called an “enchanting, troubled, gallant little city” has limitations that most other big cities don’t. Its 49 sq. mi. (127 sq km) would fit inside New York City six times. And the local government has long indulged development-averse residents, fighting tall, dense buildings while preserving rows of quaint Victorian houses. “That’s where San Francisco as a city has failed,” says Moretti. “By constraining the amount of new housing, San Francisco has essentially pushed up the price of housing.”

For example, the entire West Bay region added 26,700 jobs from December 2012 to December 2013. Yet only 6,000 new housing units are currently under construction in San Francisco. Consequently, housing costs have gone through the roof.

The prices for other goods are rising too, as businesses shift and cater to a class for whom money is less of an object. People stand in line for individually hand-poured drip coffee that costs $3 per 10-oz. (295 ml) cup.

The tension between those moving in and those getting pushed out is fueled every morning as comfy private shuttles pull up to city bus stops. Known as Google buses, the often double-decker, wi-fi-equipped coaches ferry employees of Google, Facebook, LinkedIn and other tech firms from their homes in the city south to the duller corporate campuses in Silicon Valley. The city plans to start regulating the shuttles and charge them $1 per stop, but the plan has only fanned the flames among residents who pay $2 per person to ride city buses.

The gap between rich and poor has grown in the U.S. since the early 1970s. From 2009 to 2012, the top 1% of incomes rose by more than 30%, while the rest grew less than half a percent.

One obvious solution to the crisis is to build more housing. Lee has fast-tracked projects for lower-income residents, while city officials are trying to strengthen anti-eviction laws to keep current tenants in place. The mayor also supports raising the minimum wage from $10.74 per hour to possibly $15. And he is encouraging the tech industry, which helped elect him, to contribute more to civic causes.

Solutions to the city’s identity crisis are trickier because they depend on whom you ask. Is San Francisco still a place for a poor muralist who renamed himself Ronin, who spends his days scrubbing graffiti off public art and who says the new arrivals “are pretty much exclusively at fault” for his homelessness? Or is it for the striving engineers and entrepreneurs who have jump-started the economy–and who sometimes make offhand comments about people who earn $200,000 as being poor? Many residents want the city to be, as Lee says, a place for “the 100%,” but that’s a tall order even when there isn’t a gold rush.

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