To keep tech companies, S.F. gentrifies housing

To keep tech companies, S.F. gentrifies housing

 

San Francisco wikimedia“A city is where sirens make white streaks of sound in the sky and foghorns speak in dark grays,” wrote fabled columnist Herb Caen. “San Francisco is such a city.”

It’s also a city with a severe housing shortage for middle-class workers in its fabled high-tech companies.

In 2012, San Francisco added 21,500 new jobs but permitted only 2,548 new housing units to be built.  At an average household size of 2.91 persons, that would accommodate only about 7,415 more people.   As a result, East Bay home prices have reportedly increased 76 percent.

Five percent of the city’s 212,000 rental units are kept vacant by landlords rather than surrender them to the predation of rent control.  A city study conducted in 2000 found one-fourth of rent-controlled households had incomes of more than $100,000 per year.

Twitter was going to move its headquarters out of the city because it had to double the size of its workforce from 450 to 1,000.

It wasn’t only Twitter that was considering moving.  It was high-tech companies like Yelp, Yammer, Autodesk, Zendesk and Zynga as well.  Zynga, a computer gaming company, hired 800 in 2010 and 1,500 in 2011.

Choice

The choice for San Francisco politicians came down to either losing its gleaming tech firms or retaining long-time renters in rent-controlled apartments.

The employees of these companies liked the arts, the historical buildings, the cultural diversity, the restaurants, and the bike lanes.  But they didn’t like the blatant homelessness, the underperforming public schools, the crime and the lack of quality housing.  It is the lack of ownership housing that results in greater crime, underperforming schools and lower quality of life.

The issue wasn’t affordable housing, but affordable housing for whom?  San Francisco needed more middle-class housing.  And the only way to create it in a fully built-out city with heavy rent controls was to make it easier to convert apartments to condominiums.

It wasn’t a mortgage bubble, greedy banks, Wall Street, developers, racist mortgage red lining or ideological conservatives that brought about the conversion of apartment buildings to new condominiums in San Francisco.  It was the economic reality of retaining new high tech jobs that led politicians to embrace what previously would have been political suicide: gentrification. Gentrification is where new middle class homeowners displace lower income residents and upgrade deteriorated urban areas.

Gentrification in recent decades has happened in other major cities, beginning with Washington, D.C. Now it was the turn of what columnist Caen, in the title of his best-known book, called “Baghdad by the Bay.”

Big corporations make rent control & diversity possible

The San Francisco Chronicle recently described the eviction of Chinese tenants at an eight-unit apartment building at 1508 Jackson Street under the City’s new Ellis Act.  The building is in the process of being converted into group ownership called a tenancy-in-common.  In a TIC, each owner holds a percentage of the whole property rather than owns a specific condominium unit.  TIC’s have evolved as the primary source of entry-level ownership housing in San Francisco due to rent control restrictions.  Apartments converted into TICs can be converted to condominiums in five to six years, while new TIC’s must wait longer.

In June 2013, San Francisco threw out its former lottery system of no more than 200 condo conversions per year.  It replaced it with a system that allowed 2,200 TIC units to be converted to condos.  Additionally, condo conversion developers were assessed a $20,000 conversion fee per unit for affordable housing. This created a backlash by tenants’ rights groups charging racism, opportunistic evictions and driving diversity out of the city.

Ironically, a Chinese mayor and a Chinese landlord were the sources of the eviction of the Chinese couple reported by the Chronicle.  The arguments that gentrification was destroying the diversity of San Francisco could not be empirically substantiated.  According to the U.S. Census Bureau, renters occupied 63 percent of the housing stock in the city and owners only 37 percent.  Greater income diversity would result by creating more middle-class ownership housing.

If it were not for the high taxation of big corporations in San Francisco, cheap rents from rent control would be impossible.  Instead, the city would have to depend on much higher property taxes.  And that would mean rent control would have to be eliminated.  And with higher property taxes, many of the city’s social enclaves would be difficult to sustain, such as Chinatown, the Hispanic 24th Street District, Japantown, the Bohemian Haight-Ashbury district, the artist colony of Russian Hill, the hipster Mission District and the Castro District.

The only other alternative for San Francisco would be to relax its growth restrictions on building density, heights and historical preservation. But that is not going to happen.

Paradoxically, San Francisco has no place to go but to embrace gentrification if it is to keep its jobs base, remain diverse and maintain cheap rent-controlled housing and ultra-low taxes for small businesses.



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