Why is San Francisco Housing so Expensive?

San Francisco is one of the fastest-growing cities in the world. Once a cultural melting pot, it’s now the tech mecca with engineers in Patagonia vests and new developments covering the entire bay. Although the new business has provided a boost to the economy, it’s having lasting impacts on the city culture and its infrastructure.

Like most markets, San Francisco’s housing prices are dependent on the levels of supply, number of houses available for rent, and demand the number of people looking to rent. San Francisco’s market has limited supply because of zoning laws limiting growth in housing but increased demand because of the new investments in big tech and influx of young affluent professionals.

San Francisco

San Francisco is known as a cultural melting pot of the United States. This was because of the diverse history it has and the different groups of people it’s attracted over the years. It was a huge part of the gold rush which drove people from the east with the hopes of new opportunities. This is when the city saw its first major population growth with over a 2,000% increase in just one year (1848- 1849). It was also home to the hippie and gay rights movement. These moments remain a part of the city as it’s considered one of the most liberal in the world.

Since the gold rush boom, San Francisco is facing another influx of people seeking to see better opportunities. This second rush can be attributed to the increased amount of big tech companies bringing in skilled labor with a need for housing. San Francisco has entered a new era that’s completely changed the city’s skyline and culture. 

Zoning Laws

The first zoning laws were passed in San Francisco in 1921. The new plan divided the city into different zones based on their primary use, residential, industrial, and commercial. It also included an unrestricted district. In 1938 they allowed exceptions to the zone regulation for things like adding a gas station in a residential area.

Zoning laws were starting to gain popularity in San Francisco in the 1960s with the introduction of the City Planning Code. These laws were set up to maintain the quality of urban neighborhoods as they grow. One of the main objectives of the zoning laws is to prevent the over-crowding of people and buildings. You can find a properties zoning code on the city planning website. Zoneomics also provides a website that shows you the zones of different general areas. You can find it here.

These zoning laws divided San Francisco into different districts similar to the ones passed in 1921 diving districts into, residential, commercial, and industrial. They implemented strict density limits ability to add additional buildings to an existing lot. Developers were no longer allowed to build townhomes and duplexes in areas that were set aside for single-family homes. Townhomes and single-family homes allow for more people to live on a limited parcel. Since only 200,000 parcels exist in the city, the ability to optimize the number of people while still providing a good quality of life for everyone in the city is critical.

Big Tech Invasion

There’s no doubt that San Francisco and Silicon Valley is considered one of the innovation and technological capital of the world. However it didn’t start with the big tech people are familiar with today like Facebook, Google, and Apple. It started with Fairchild Semiconductor (founded 1956) and Hewlett Packard (founded 1939), who were two of the first major tech companies in San Francisco. After that organizations like Cisco moved there to get access to the resources established by their predecessors.

Now we have every major tech company headquartered in the bay. Even though both cities are notoriously expensive, it gives organizations access to capital and investors who work exclusively in tech. With the introduction of a few major big tech companies, others flooded in because it offered a substantial amount of resources available.

Impacts of Gentrification in San Fransico

San Francisco is the second-most densely populated city in the United States. Infusion of new money is pushing local residents out. As people purchase homes to rent out because of the boom in young professionals, they drive out the ones who have been living there for their entire lives. It’s the people who are not homeowners, who are impacted by increased rents. The people at the most risk are considered lower income.

Francisco has one of the highest levels of wealth disparity in the country. Income inequality happens all over the world but San Fransico has increased the most since 2007, correlating with the big tech boom. You can see in the chart below that the bottom 20th percentile lost wealth while the top 95th percentile wealth has increased more than any other city in the United States.

One of the best parts of San Francisco has been its art. Driving through the streets you’ll see beautiful street murals that show the history and struggle of its longest residents. As these residents are no longer able to live in these neighborhoods, the art goes too and San Francisco will inevitably lose its original charm.  

Rental prices in San Francisco have increased over the last years and lower-income and less-skilled workers can no longer live there after the tech boom. On top of that, as the cost of goods increases because incomes have increased and the demand to cater to a new demographic, the locals can no longer find good affordable restaurants and entertainment.

Ellis Act Evictions

When a landlord decides to exit the rental market, they’re allowed to evict tenants regardless of any rent control laws. Within the first year of ownership, they can go out of the rental business and evict the tenants at no fault of their own. This law was passed in 1985 as a response to Nash v City of Santa Monica which allowed cities to try to intervine when tenents would like to stop renting their properties. These are commonly done in rent-controlled areas to get a new market value for the property. 

This is a California state law and not just something that exists in San Francisco. Los Angeles also sees a substantial amount of Ellis Act Evictions. Most of the time if you’re on the receiving end of an Ellis Act eviction, the landlord will be required to provide some compensation for relocation.

How Housing in San Francisco is Improving…

With the pandemic, people are leaving the city because they are no longer required to stay there to work at these larger tech companies. This means there may be a decrease in population density and a better quality of life.

We can’t say exactly what will happen to the city but there are resources for low-income households to help combat the cost of inflated rental prices. Click here to find your local Department of Housing and Urban Development office. We can say that the market is built on supply and demand so to get lower rent prices, people have to leave or more housing has to be introduced.