Column: IPOs creating crisis in San Francisco

Katherine Boyle

At 12:30 Pacific time on a recent Friday afternoon, a small crowd gathered at the foot of San Francisco’s tallest, shiniest office tower. Onlookers stared at a temporary stage decked out with a banner that read, “Celebrating 20 Years of Salesforce!” Onstage, flanked by backup dancers, stood a man dressed in a full black suit singing a familiar tune:

“They can’t, they won’t, they never will … stop the party.”

“Is this Pitbull?” I asked a middle-age man in a corporate-branded Patagonia vest.

He just nodded as he stared ahead.

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“Y’all having a good time out there?” Pitbull asked to silence.

A good time should not be hard to come by in San Francisco, but do not blame us for being antsy. As if $24 lunch salads, multiplying tent cities and two-hour commutes across the Bay Bridge were not worrisome enough, the city at the heart of the global tech revolution is now at the breaking point – and bracing for another wave of wealth to hit. With Bay Area-based tech companies scheduled to hold initial public offerings this year, the city of instant millionaires is about to have thousands of even newer millionaires. And many residents of this city – secretly and not-so-secretly – fear that 2019 is the year San Francisco becomes a truly impossible place to live.

Initial public offerings should be causes for celebration, and not just for those ringing the bell at the stock exchange. These public and soon-to-be-public companies – the likes of which include Lyft; Slack; Postmates; Pinterest; Uber; and Levi Strauss, a San Francisco stalwart founded during a different Gold Rush – will allow everyday investors across the country (finally!) to partake in the fruits of a decade of consumer internet innovation. Similarly, universities, pension funds and non-profits will see windfalls that will underwrite important work across the country.

But most of the initial employees and early investors in these unicorns live here in San Francisco, one of the most densely populated metropolitan areas in the United States. In the months after these companies go public, it will be fair to ask: How much wealth can one city take?

You could say this crisis is not San Francisco’s fault, at least not entirely. It did not anticipate the smartphone, the app store or the consumer internet revolution that made San Francisco a magnet for young people seeking burritos and taxis at 3 a.m. It was not prepared for global interest rates to hit record lows and remain there, making late-stage venture capital a lucrative asset class where companies could stay private longer, raising funds not from public markets but from individual and institutional investors. It didn’t anticipate the worst recession since the Great Depression and the surge of excess labour to power the gig economy. Nor did it notice the emergence of cloud computing that made startups easier to launch from a studio apartment rather than a suburban garage.

But it did adopt – and then cling to – closed-minded housing policies for decades, stunting construction and stifling growth even as repeated waves of young people poured into the Bay Area over the past 20 years to build the next big thing. San Francisco, very literally, was not built (or zoned) for this many people or this much good fortune.

A family of four making nearly $120,000 in San Francisco is now considered low-income by the Department of Housing and Urban Development. According to a recent report from rental website Zumper, the median market monthly rent for a one-bedroom here has hit an all-time high of $3,690 – nearly $45,000 a year. There are social-impact startups, such as Landed, helping the underpaid and underappreciated – like teachers and nurses – afford housing in the region.

Meanwhile, if you are looking to buy a single-family home, good luck: Although there are about 100,000 vacant homes in San Francisco and neighbouring communities, many are not for sale; some have been bought, likely as an investment, and simply left empty. (It is not uncommon to find apartment buildings here that are one-fourth to one-half empty, an experience that is a little eerie, not to mention inefficient.) Those with the means to buy a home in these parts will find it challenging to lock one down, and the most-discussed topic among young people is: Will I ever be able to afford the apartment I am renting?

The irony of this extreme concentration of wealth is that tech was supposed to solve this problem and allow people to innovate anywhere. Instead, this super concentration of new wealth is likely to push talented people and their employers out of the area in search of more sustainable lifestyles – meaning the wealth is pushing people out of San Francisco, not the democratisation of tech. It will also ensure that bashing tech companies is going to be the safest political sport for politicians in the months leading up to the 2020 election. Candidates on both the left and right will lift a page from the early 20th century election playbook, when Standard Oil was depicted as an octopus, dexterous enough to parry Republicans and Democrats.

No one’s weeping for big tech, but the war on Silicon Valley will not solve the region’s housing crisis, either. And regulation won’t stop a financial culture that will continue to mint more unicorns and, thus, more Bay Area millionaires. We can only hope that a crisis of wealth will lead to better housing policy in the United States’ tech capital, and that some of tech’s victors will make an exit from this lavish party and take their wealth, their angel investments, their networks and their knowledge to communities outside a fatigued city that simply was not prepared for this Big One to hit.

Katherine Boyle is a venture capitalist at General Catalyst in San Francisco. © 2019, The Washington Post Writers Group.

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