San Francisco’s bustling, thriving and rapidly growing economy, has drawn tens of thousands of new residents, “transplants”, over the past few years. The population growth, in response to the jobs, many from the Tech sector, has hugely impacted the relatively small city, especially the housing market.
The Tech Industry established the Bay Area, including Silicon Valley, as its home years ago with the Dot Com bubble in the nineties. We saw the subsequent ups and downs in the early 2000s, and now with the latest Tech boom, the Bay Area has once again become the Tech capital of the country, if not the world.
The growth of the Tech industry and rise in the cost of housing is not surprising – nor new – especially for those living in the area. However, the pace and extent of the growth and rate of rising costs is astounding, and many are struggling to keep up!
Homelessness is on the rise, there are many more cars on the road and the burgeoning growth of start-up services that appeal to urban dwellers continue to pop up at break-neck speed.
San Francisco is undergoing a huge housing crisis at the moment. According to Priceonomics, “the supply of housing is relatively fixed as large swathes of the city aren’t zoned for the type of high density housing that could accommodate the increased demand”. This restricted market only increased the cost of housing more.
According to real estate listings site Zumper, the median rent for a one-bedroom apartment in San Francisco in January 2015 jumped to $3,410, up 0.6 percent from December 2014. Housing in San Francisco, for the first time in history, surpassed Manhattan in New York City to earn the title of the most expensive housing market in the nation.
This jump in rent prices over one month may be small but it follows a year where rent prices shot up an average of 13.5% in 2014. The Huffington Post reported that, “San Francisco has become increasingly unaffordable for many of its long-time residents and low-wage workers as an influx of Silicon Valley wealth floods the city. Income inequality in San Francisco is so great that it’s on par with that of developing nations.”
This is cause for concern for many current and long-term residents of San Francisco. Renters can easily pay upwards of 70 percent of their income on housing — even with a roommate. Many areas of the city are gentrifying rapidly, displacing many residents. Some residents are waiting and hoping the housing market will dip, if not crash, so that they are able to stay in the city and not be priced out.
The housing market is dependent upon the Tech Industry and the Tech Industry is rapidly growing. But is it growing too fast? Will it crash? Will the Bay Area Tech bubble burst like the Dot Com bubble did in the late nineties?
At the height of the Dot Com bubble, March of 2000, the Nasdaq composite index reached the highest it ever had in history: 5,000. On March 9, 2015, the U.S. stocks closed above that 5,000 mark for the first time since March 2000, 15 years ago. Is this an indication of impending doom?
Chris Thornberg, an economist in Los Angeles declared that “This is not a bubble”. While he is a single voice, he has the dubious distinction of having predicted the 2008 market crash. He explained that the money flooding the Bay Area isn’t built on speculation like the last boom.
“These are people with real money, with real incomes. They have enough money to live in whatever cities and neighborhoods they want, so if there’s not enough high-end housing, they’ll just gentrify lower-income neighborhoods.”
So if we believe this, then the answer is no. This is not a bubble. This is solid growth.
While the Tech industry may not crash the way it did when the Dot Com bubble burst, the rate at which the cost of housing is rising, is historically not sustainable. The Real Estate industry believes that the market will plateau within a year or two. Some economists support this theory because while there is job growth, in general, wages have not increased to even keep up the rising cost of housing nor have wages keep up with inflation over the past 15 years.
Big tech companies like Apple, eBay, Facebook, Google, Yahoo and Electronic Arts are all getting richer and more influential by the day. We hear of inflated salaries among tech workers, and yet there are also stories where tech workers still cannot afford the rent and have to co-share accommodations with five other people in a crowded apartment, or sleep in their cars. Some are one short step away from being homeless.
If this is solid growth for businesses, what is the gain for humanity?
For more about urban growth, urban consumers and to find out what a megalopolis is, read our report on Urban Consumers in High Density Cities HERE.
Banner Image Credit: Hardik Pandya on Unsplash
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