San Francisco’s 1 Percent Dilemma

(Originally published here.)

San Franciscans are fighting over a scarce and valuable resource: The ability to live in the city as it now exists. The trouble is there simply isn’t enough room for everyone to live in San Francisco, so wealthy newcomers are inevitably displacing long-time residents.

This has led to an outpouring of suggestions about how to resolve the problem, not all of them very helpful. Retired venture capitalist Tom Perkins tastelessly warned of similarities between “the progressive war on the American one percent” and “fascist Nazi Germany” in a letter to the editors of the Wall Street Journal, while decrying those making a fuss about housing prices and prosperous tech workers. As if to prove his ridiculous point, protestors in San Francisco and Berkeley have been picketing private homes and preventing commuters from getting to work. Perhaps in the expectation that he can earn a pass, Marc Benioff, the boss of Inc., is criticizing his peers for their “stinginess.”

Some people think San Francisco’s problems could be solved if the city destroyed the things that make it attractive. These advocates want more building,higher density, and many more people. Thus we get articles titled “San Francisco Is Great — They Should Make More of It,” even though it already is the second most densely populated large city in the U.S. Harvard economist Edward Glaeserthinks “the most obvious change is to fix the one-sided environmental review process”, apparently unconvinced that the abundance of green space is a huge part of the city’s appeal. (Sometimes I wonder if these people are inspired by the dystopian megacity in the science-fiction film “Dredd.”)

San Francisco is a hilly city on the tip of a narrow peninsula on the Pacific Coast. It has plenty of tree-lined streets, lush parks and neighborhoods filled with Victorian-style houses. A short drive away is one of the world’s premier resort destinations, one of the greatest wine-producing regions on the planet and gorgeous beaches and hiking trails. More than 36 percent of the private land in San Francisco is zoned for single-family homes, which gives the city a human scale that’s absent from the hemmed-in neighborhoods of overcrowded New York. It’s striking how quickly San Francisco’s housing costs have soared, but it shouldn’t be surprising that rents now exceed those of New York.

The strife can be blamed on two recent developments. First, tech workers got more leverage over their employers. Tech bosses had a cartel to suppress wages in the 2000s, but the rise of new companies such as Facebook and Twitter helped push up pay. In an irony that today’s radicals seem to miss, labor’s victory over capital led to a big increase in spending power across the Bay Area. A handful of super-rich executives getting even richer just can’t exert much of an impact on home values in the same way as tens of thousands of newly wealthy programmers.

Rising pay for engineering talent coincided with Wall Street’s diminished appetite for young quants in the aftermath of the financial crisis. Thousands of single people in their 20s who might have gone to New York moved to San Francisco instead, picking the heart of the city over the suburbs closer to their workplaces. Employers accommodated this shift by busing tech employees to the job. Evidence suggests that the buses reduce traffic congestion and improve the quality of life for young tech workers, although the same analysis also suggests that many workers would live closer to their offices outside San Francisco if not for the buses. Long-time residentsresent the buses not so much for the inconveniences they allegedly cause but because of what they represent: new money bidding up housing prices.

There is no sexy solution to San Francisco’s problems. Long-time residents can accept their displacement gracefully and contribute to the revitalization of Oakland (and maybe even Richmond). They can try to reject the influx of new wealth through discriminatory regulations. Or everyone can agree to remake the city into something very different from what it is now. ll of these paths will be painful, but San Franciscans will have an easier time reaching an accommodation if radicals and elderly buffoons stay out of the process.

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)

To contact the writer of this article: Matthew C. Klein at

To contact the editor responsible for this article: James Greiff at


About Matthew C. Klein

I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.
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