Among the credible candidates to be the economic capital of the 21st century, the oddest and most reluctant has got to be San Francisco.
It is the main urban center of a region that is home to many of the leading corporations of the digital age, an area that has become an unparalleled hub of innovation, invention and entrepreneurship. Yet it had just 852,469 inhabitants as of July 2014, according to the US Census, only 10 per cent more than it did in 1950. San Jose passed it in the 1980s to become the region’s biggest city. And while San Francisco is pretty densely populated by US standards, it could clearly fit a lot more people. If it were as densely settled as the New York City borough of Brooklyn, for example, it would have a population of 1.7 million.
In earlier decades, when suburban living was in vogue and the Bay area’s centre of economic gravity was shifting southward toward San Jose, San Francisco’s slow growth seemed natural enough. But now more and more of the smart, ambitious young people who power the region’s economy would rather live in the city than in the tract homes of Silicon Valley.
Many of them commute south from San Francisco to the suburban office campuses of Apple, Facebook, Alphabet/Google and other tech giants. And newer tech companies (or tech-enabled companies; despite all the technical expertise at work it seems a little odd to call Uber or Airbnb tech companies) have increasingly been locating in San Francisco proper.
The result is a city that, even as its latest wave of startups begins to struggle, feels like it’s on the verge of the kind of economic leap forward that most places on the earth can only dream of. Economists have learned much in recent years about the advantages of agglomeration. Put lots of highly skilled, highly productive, highly innovative people together in the same place and the economic gains are huge. The Bay area has been such a place for a while now; what’s new is San Francisco’s opportunity to regain its role as the region’s economic epicentre in turn driving even more economic growth in the area and -- by extension -- the US.
The city is growing. It has added about 50,000 people since 2010, and 8,900 new housing units were under construction as of last fall. Big new apartment buildings are transforming once sparsely populated areas south of downtown. But on the whole it’s fair to say that San Francisco hasn’t exactly embraced the role of boomtown. There are voter-imposed limits on office construction, new housing developments usually face protests and litigation, and local politics boasts a strong contingent of “progressives” whose main goal seems to be keeping the city from changing.
Since the 1970s, wealthy suburbs across the US have become expert at preventing growth and change through zoning. By now there’s an extensive literature documenting and often decrying this. In his 2015 book “Zoning Rules,” Dartmouth College economist William Fischel explained it mainly in terms of property values -- homeowners favor zoning ordinances and other growth restrictions because they keep house prices up.
That kind of homeowner opposition to growth is a big issue in the Bay area’s suburbs, an early hotbed of slow-growth sentiment, and in some parts of San Francisco. But 65 per cent of the city’s housing units are rentals, and 75 per cent of those are subject to rent control. Most of the San Franciscans who oppose new development do so apparently not to maximise the value of their property but to minimise the odds that they will be forced out of their apartments or otherwise priced out of the city.
There is of course something perverse about opposing residential construction in the name of housing affordability, and if one wishes to mock San Francisco’s anti-growth progressives it isn't hard to find ammunition. But these people are not crazy to worry that a San Francisco that makes room for a few hundred thousand more tech workers will no longer be the same shabbily welcoming city “that’s been a magnet for free spirits and immigrants and working-class people for decades,” as Alternet’s Steven Rosenfeld argued a couple years ago.
Then again, “free spirits and immigrants and working-class people” can’t afford to move to San Francisco now anyway -- it’s only the ones who managed to get their hands on a rent- controlled apartment years ago who can afford to stay. Here’s Sonja Trauss, a former math teacher and economics graduate student who recently founded the pro-growth San Francisco Bay Area Renters Federation:
The past is not an option. Going forward we can become either a big city, or else a highly exclusive gated community for the rich. For homeowners this is an academic question, because as owners, nothing can make them move. For renters and all new entrants (your children) this question is over whether we live in the Bay Area or not. There are 2x as many people who want to live here than do live here. The current “character” of SF isn’t very useful to people who can’t live here.
People who can’t live in San Francisco can’t vote there, though. Shifting the politics of growth in the nation’s in- demand cities is hard because most of the potential beneficiaries of that growth live somewhere else. In the case of wealthy suburbs with caps on growth, several states have tried to force them to accept more development, with limited success. Economist Fischel thinks that insuring homeowners against falling property values would be a better approach, but that hasn’t gotten much traction either.
Meanwhile, there is increasing recognition that growth restrictions restrict growth not just locally but on a national level. In a recent paper that I’ve cited before, Chang-Tai Hsieh of the University of Chicago and Enrico Moretti of the University of California-Berkeley estimated that lowering the regulatory constraints on new housing in just San Francisco, San Jose and New York to the level of the median city would lift US gross domestic product by 9.5 per cent. Jason Furman, chairman of President Barack Obama’s Council of Economic Advisers, argued in a recent speech that land-use regulations were also driving up inequality and reducing economic mobility. Meanwhile, my Bloomberg View colleague Paula Dwyer thinks housing affordability would be a great issue for Republican candidates to focus on.
For the foreseeable future, though, it’s still up to San Franciscans to decide whether to make room for a lot more neighbours. Got any good ideas for how to persuade them? - Bloomberg View