Blame Tech for California’s Housing Problems?

Actually, Most Problems Predate the Tech Boom

By guest author Mary Theroux
February 27, 2019

Marc Benioff, co-CEO of Salesforce, assailed his own industry in an interview in Davos, calling San Francisco a “train wreck” of inequality “because of the tech sector.”

There’s just one problem with his charge: Both measures he uses for inequality—homelessness and soaring housing prices—well predate the tech boom.

San Francisco has been grappling with homelessness since Dianne Feinstein’s tenure as mayor in the 1980s. In the name of “urban renewal” and “redevelopment,” a wave of demolition of single-room-occupancy hotels hit the city between the mid-1970s and the 1990s. Many low-income apartment buildings were also removed from the market: between 1970 and 2000, almost 9,000 low-rent apartments were demolished or converted. Between 1980 and 2000, another 6,470 were converted to condominiums. As a result, a dearth of cheap housing fed homelessness, which rose to a high of 8,640 in 2002 and approximately 7,500 today.

High housing prices in San Francisco similarly predate its tech boom.

According to the California Legislative Analyst’s Office, the gap between California’s home prices and those in the rest country started to widen in the 1970s, going from 30 percent above U.S. levels to more than 80 percent by 1980. Contrary to Benioff, the LAO blames public policies that suppressed construction when the rest of the country underwent a housing boom. San Francisco’s Budget and Legislative Analyst’s Office calculates that the city would have needed to add 15,000 housing units per year for its prices to have remained in line with the rest of the country, instead of the actual 2,000. That would have resulted in 459,000 units built between 1980 and 2010 instead of 60,334. Thus San Francisco’s housing supply is estimated to be less than half of what it should have been for prices to have kept pace with the rest of the country.

Not only did government policies destroy cheap housing, but expanded building regulations have also made it impossible to build cheaply. Those regulations have increased the cost of building “affordable housing” even more than they have for housing in general; this is due to the more stringent design requirements and NIMBY activism.

Today, California’s development and impact fees are three times the national average, and the Terner Center for Housing Innovation at UC Berkeley estimates that the cost of building an “affordable” 100-unit project in California increased from $265,000 per unit in 2000 to almost $425,000 in 2016.

Benioff is correct that San Francisco has a huge and growing inequality problem, and this city that prides itself as one of the most “progressive” is home today mostly to the very rich and the poor, with the middle class largely driven out. But this is not the result of “the [tech] rich getting richer.” As a recent article in The Economist concludes, California’s inequality problem is not “the stagnation of low incomes per se. It is stagnation relative to costs—in particular, the cost of housing.” Today, a minimum-wage earner in San Francisco would have to work 177 hours per week to afford an average one-bedroom rental. (There are only 168 hours in a week.)

Freeing housing markets is thus the master key to solving San Francisco’s inequality, homelessness, and housing crisis.

If Benioff really wants to get San Francisco back on track, then he should call for a vast rollback of regulations, which would make it possible to construct housing that is actually affordable—as opposed to permanently subsidized. (Instead, he is pushing multimillion-dollar tax increases for unaccountable city “homeless” funds, such as the recently passed Proposition C he bankrolled.)

A recent McKinsey study found that shortening the land-use-approval process could reduce the cost of housing by more than $12 billion through 2025 and accelerate project approval times by four months on average. Reducing construction permitting times could cut another $1.6 billion, and raising construction productivity and deploying modular-construction techniques could cut up to $100 billion.

Rather than chastising his fellow tech titans, Benioff should lead the way in establishing venture funding for housing that is truly affordable. This same McKinsey study projects that such private funding could finance more than 30,000 affordable units a year. That’s a solution everyone should be able to get behind.

Republished from Originally published in the San Francisco Chronicle.