Priced Out of San Francisco

San Francisco Becomes Too Cool

San Francisco has long been considered a "cool" hotbed for bohemian culture. It is a very left leaning city that that thrived with the help of artists, hipsters and musicians. For decades these people have been the heart and soul of the city. But, as more and more people have been attracted to the city, those who make up it's cultural background are quickly being priced out.

San Francisco Rent Growth

As you can see from this graph, San Francisco was a relatively inexpensive city for most of the 20th century and it was easy to afford to live here. By since the early 1980's, rent prices have risen at an alarming rate for residents of the city. The current median rent in the city is $3,396 according to CNN, that equates to over $40,000 per year. This is more expensive than any other American city. It's no wonder many working class residents can no longer afford to live in San Francisco. Many of these people are hopping across the bay to Oakland where rents remain more reasonable.

Why Has This Happened?

Most large cities have seen rising prices across the country, but San Francisco is an outlier. Many residents blame an influx of high-wealth technology workers for rising costs, but this is really a symptom instead of the problem for the city. The real problem in San Francisco is that residents are resistant to new construction of higher density housing. San Francisco is not generally zoned to accept new high rise construction out of fear that it will ruin the character of the city.

Economically speaking, the problem is with supply and demand. There is a severe shortage of housing supply in the city at a time when demand for living within the city is skyrocketing. Because the shortage is not being addressed effectively, prices continue to drift upward. If the city could change some of it's zoning laws to allow more construction, housing supply could be increased and counteract some of the upward price movement. Many long-time residents want to see their city stay the same, but if they want to afford to keep living there, they eventually must be willing to accept change.

San Francisco Inequality

San Francisco's Wealth Gap

Over the past decade or so San Francisco has become one of America's success stories. The city is known as a hotspot for technology companies such as Facebook, Yahoo and Google. These large companies have brought countless high-wealth jobs and opportunities to the Bay Area. It is easy to just focus on the success of the city, but the newfound wealth of the area has brought many challenges as well. The price increases that have come along with high-wage earners have begun to price out long time residents of the city, which is creating a strong divide between the rich and poor in the city.

In 2003 the average rent in San Francisco was around $1,700 but today is has risen all the way to $2,800. That is nearly double in ten years. That isn't a problem is you happen to have a high paying job in the technology industry, but it presents problems for San Francisco's long-time population of artists and small business owners. These groups may have seen their incomes rise slightly over the last ten years, but not fast enough to keep up with rising housing costs. Rather than feeling wealthier over time, many long time San Francisco residents have slipped down the lifestyle ladder.

Over the past several years, GDP has increased in San Francisco while median income levels have dropped. This is a sure sign of rising inequality. Despite the rising tide, food stamps are at a ten year high and homelessness is increasing at a dramatic rate. All the while, luxury coaches bus technology workers from the city to nearby Silicon Valley every day for work, ignoring the realities of the world outside. Right now the San Francisco area is home to record levels of both millionaires and impoverished households. 

Improving The Driving Experience: Dynamic Parking and Driving

Yesterday I was watching a video about new innovations that will likely come to the car industry over the next 20 years. Most of the new ideas focused on cars themselves but my two favorite takeaways were actually about the driving experience as opposed to the physical car. Some cities like San Francisco have begun experimenting with what is known as dynamic parking and driving, bringing economic theory to life for drivers in congested areas.

Dynamic parking is essentially supply and demand brought to life in real time. Have you ever spent an hour driving around a city looking for a parking spot? Well no more. Really. In San Francisco, as parking spaces get taken, the prices of other meters increase continuously up to a current $6 dollar per hour cap. As prices rise higher, people are less likely to want to pay to park, but for those who really need a spot and are willing to pay, spots will be available. Once the program finishes the pilot phase, the maximum cap will likely be removed from the meters so that the system can work even more efficiently.

Learn more about this map and San Francisco parking here.

The second thing that I like even more than dynamic parking has a variety of names but for purposes of consistency I will call it dynamic driving. Picture a crowded four lane highway with cars stuck in every lane for hours trying to get to work, school or wherever. Now imagine cars cruising at non-traffic speeds through one of these lanes. This is dynamic driving. Much like getting a fast pass at an amusement park, drivers can opt to pay a price to drive in the traffic free lane. Depending on how congested the other lanes are, this price will fluctuate to ensure that the traffic free lane really remains traffic free. This will allow people the option to choose to pay to remove the inconvenience of traffic which is a remarkably new idea.

Both dynamic parking and driving new ideas but they come with great benefits. They can boost government revenues both at local and federal levels as people pay directly for the convenience of using roads and parking spaces. Despite the increased revenues for the government and overall efficiency gains, consumers have the option to keep their current habits; if you don't want to pay, you can stay in traffic just as you always have. There seem to be few if any downsides to these new programs and other cities will soon likely follow San Francisco in adopting these new innovative traffic control measures.

Despite all of these innovations, car use may be on the permanent decline. 

Urban Rent Crisis

As I have moved closer to the end of my college career, I have spent a lot of time reading about life after college and trying to get a feel for what comes next for graduates. One thing that I have discovered is the high cost of living in many large cities where jobs are located. In larger cities, residents pay huge percentages of their income towards rent and it appears that the cost increases of housing outpace the overall cost of living increase between rural and urban areas.

Tiny apartments such as this one are becoming more standard in densely packed cities such as Boston, New York and San Francisco, but they still can cost upwards of $2,000 per month. Many of these small apartments are between 250-300 square feet. This is a high price to pay for living downtown. 

For people who cannot imagine themselves crammed into microapartments, costs can run even higher. In Manhattan for example, the average price of a one bedroom "regular" sized apartment runs about $3,000 per month. Most financial advisors will recommend that a person spend no more than about 25% of their gross income on housing. In order to afford a $3,000 per month one bedroom apartment, a person would need to earn around $145,000 per year. 

The situation in Boston is a bit less crazy. This map shows the distribution of rent prices around the city. Notice that darker red colors are located close to subway stops. In the heart of the downtown area, prices are approximately $2,000 per bedroom. 

Personally I wonder how anyone can afford to live in these cities without making huge financial sacrifices. It seems to me that it would be nearly impossible for college graduates to practice financial responsibility while trying to live in one of these expensive cities. Unfortunately, these areas are extremely appealing for college graduates and tend to have the best job markets as well.