This is why San Francisco’s insane housing market has hit the crisis point

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Kyle Russell/Business Insider

Five years ago, I moved to San Francisco – right as the current startup boom kicked off.

Those five years saw a lot of change in the city, as tensions between longtime San Francisco residents and the tech industry hit a fever pitch.

It all traces its roots back to the San Francisco Bay Area’s housing crisis, where people are going to ridiculous lengths, including living in boats, vans, and cardboard boxes, just to make ends meet.

The thing is: San Francisco was here before the tech industry was even a thing, and it will be here after. And it’s all because of some decisions made in the 1950s and 1960s.


San Francisco is the second-densest city in the US, after New York City, with about 18,451 people per square mile packed into about 47 square miles.

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Reuters/Robert Galbraith

That density, combined with the continued influx of people into San Francisco, has led to an epic housing crisis. In 2015, the median house price in San Francisco was six times higher than the median price of existing homes in the US.

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Wolf Street

High home prices, plus high population density, plus low availability has led to San Francisco becoming the most expensive place in the country to rent.

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Zumper

It has put a big squeeze on the lower and middle classes: Schoolteachers in San Francisco, for example, earn $65,240 a year on average. To live in a one-bedroom the city, they would have to spend 64% of their annual earnings on rent.

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Shutterstock

Source: San Francisco Chronicle.


It has gotten so bad that designer Peter Berkowitz started living in a box in a roommate’s living room for about $400 a month.

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Peter Berkowitz

Source: Business Insider


The tech industry gets a lot of flak for exacerbating this crisis, with lots of young, well-paid people coming in and driving prices up for both rentals and home purchases. But that’s only part of the story …

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A mural in the middle of San Francisco’s Mission District.
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Biz Carson/Business Insider

This picture was taken in 1945, right around the tail end of World War II. If you’ve ever been to San Francisco, you may notice that it hasn’t changed much … which is kind of the problem.

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Wikimedia Commons

As TechCrunch reports, the problem really started in the 1950s. An urban redevelopment program in the city’s Fillmore District, which is sometimes called the “Harlem of the West,” led to the displacement of the neighborhood’s African-American citizens and their businesses.

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Wikimedia Commons

Source: TechCrunch


Burned by the Fillmore project, San Francisco pushed back by adopting a series of zoning regulations designed to preserve the city’s character and local color — at the expense of new housing development.

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San Francisco’s Haight-Ashbury District.
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Flickr / Ian Ransley

Among other laws, San Francisco banned buildings over 40 feet tall in most of the city, and banning high-rises and skyscrapers in many residential areas.

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Reuters/Robert Galbraith

San Francisco also put provisions in place so that neighborhoods could officially object to new housing developments, blocking their construction.

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Universal

As a 1999 San Francisco Weekly article noted, it hasn’t been all bad for the city. It has preserved a lot of San Francisco’s character over the years and engaged the community more in local politics.

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Shutterstock/Andrey Bayda

From 2007 to 2014, the San Francisco Business Times reports, the city only approved half of the building permits necessary based on the population growth amid the startup boom.

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Lisa Eadicicco

Source: San Francisco Business Times


Another factor here is rent control. San Francisco places strict limits on how much landlords can raise the rent every year, at a rate tied to inflation. Right now, that’s 1.6% per year. Estimates say that 75% of all housing units in San Francisco are covered by rent control.

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f11photo/Shutterstock

On the one hand, tenants see rent control as an important weapon … it means that even if housing prices go up, their rent stays relatively stable. For lots of families, it’s the only way they can stay in San Francisco.

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Flickr / Jennifer Morrow

But rent control also removes the incentive for landlords to keep tenants, since their potential profits may lag behind the overall housing market. And San Francisco is famously pro-tenants’-rights, making evictions difficult. That leads to reduced overall housing inventory.

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Sarah Nichols/Flickr

To get around rent control, landlords have been using (or abusing, if you ask tenants’ rights organizations) a California state law called the Ellis Act. Basically, landlords declare themselves “out of business” …

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REUTERS/Mark Blinch

… which legally lets them perform what’s called a “no-fault eviction.” They can kick out all of their tenants, turn the place into a jointly-owned “tenancy in common,” and bring in new residents at a much higher price. It’s almost like a fast-forward button for gentrification.

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Robert Couse-Baker/flickr

The hundreds of Ellis Act evictions in San Francisco are a big reason there’s so much tension between longtime city residents and the tech industry: The influx of Googlers and Facebookers may not be the direct cause, but it’s a convenient scapegoat.

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Matt Rosoff / Business Insider

Airbnb especially catches a lot of flak. There’s a lot of concern that San Francisco landlords are renting units on Airbnb at high prices, rather than hosting permanent tenants, which would worsen the problem.

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Glassdoor/Airbnb

(It’s also worth noting that there was a similar backlash against tech in the ’90s, when the dot-com boom came to town, for all the same reasons.)

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Bad memories.
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ACproducts

Silicon Valley luminaries like investor Ron Conway and Salesforce CEO Marc Benioff have spoken in favor of Ellis Act reform. In 2014, San Francisco approved payouts of over $44,000 in restitution in certain cases to people affected by the Ellis Act.

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Salesforce CEO Marc Benioff
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Robert Galbraith/Reuters

Now, San Francisco’s housing woes have spread outside the city: As real estate gets more expensive in the city, tenants and landlords alike have started looking at cities like Oakland and San Jose, causing many of the same problems there.

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Matt Weinberger/Business Insider

Expect that to accelerate as companies like Uber move their headquarters to downtown Oakland.

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Getty / Oli Scarff

This has all become a political issue in San Francisco. In the November 2015 election, Proposition I introduced a measure called the “Mission moratorium,” which would have banned development in the hip Mission District for 18 months — unless the new units were offered below the market rate.

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Melia Robinson/Business Insider

During that same election, Airbnb reportedly spent $8 million fighting Proposition F, a measure that would have placed a lot more regulations on the home-sharing service. Both propositions failed at the ballot.

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Justin Sullivan/Getty Images

So the fight continues as new housing development continues at a snail’s pace. But some light is on the horizon: In April 2016, home prices in San Francisco finally dropped for the first time in four years.

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Shutterstock/holbox

Source: Business Insider