I’ve Seen This Movie Before, and I Remember the Ending: On the Tech Bubble and Unaffordable Housing (Part 2)

Read Part 1

You know how I mentioned that a lot of Silicon Valley workers were living in San Francisco? One of them was my dad. He was a computer programmer, and he would drive or take the train down to places like Menlo Park, Mountain View, and Redwood City. He was living in San Francisco partially because my mother owns a house in San Francisco, but partially because he doesn’t like Silicon Valley, and does not want to live there. Silicon Valley reminds him of how the semi-rural town he grew up in got developed into a suburb full of generic houses and businesses, ripping out most of the natural environment in the process. He prefers San Francisco because, as he puts it, “San Francisco has history”.

Anyway, what happened during the dot-com bust?

Rents fell. Housing remained expensive, but there was much less talk and protest about gentrification, and housing was no longer the top political issue. What became a more important political issue? I’ll give you a hint: according to the California Employment Development Department the 1999 unemployment rate in San Francisco was 3.1%. In 2002, the unemployment rate was 6.9%. And then a year later the municipal government started issuing same-sex marriage licenses, which both provided a welcome boost to the economy and gave everyone another political issue du jour…

2002 was the year my dad lost his last job. His plan was to live off his savings until he could get another job – but he never did get one. Luckily for him, a combination of Social Security (once he became eligible), his savings, and what he inherited from his parents has been enough for him, and I now describe him as ‘retired’. Granted, he had ageism working against him, so his employment situation can’t be entirely blamed on the economy, but I don’t think it’s a coincidence that he dropped out of the workforce around the time of the dot-com bust.

The fall in both housing and commercial rents were a boon to some folks who were hurt less by the dot-com bust than by the heights of dot-com era rents. I knew some of these folks. Nonetheless, there is a reason why nobody says ‘Let’s reduce the rents and the cost of buying a home by doubling the unemployment rate!’.

I think, however, that an economic downturn is going to be the very thing which brings down the cost of housing in San Francisco, just as it was in the dot-com boom-bust. I see signs that the downturn is already beginning – such as the layoffs at Twitter (note that Twitter has never turned a profit). And I fear that, just as this housing crisis was more extreme than the dot-com one, the coming economic downturn will also be even harsher than the dot-com bust.

I’ve Seen This Movie Before, and I Remember the Ending: On the Tech Bubble and Unaffordable Housing (Part 1)

If you live in the San Francisco Bay Area, you are almost certainly aware that available housing is extremely expensive, and that there is a lot of fuss about the ‘tech’ industry – by ‘tech’ I mostly mean companies which have something to do with the internet and associated devices. The connection between the ‘tech’ companies and their cash, including their employees and their cash, and the high cost housing, is widely understood. The (Inner) Mission is being gentrified, South of Market (SOMA) is being gentrified (for people who aren’t familiar with San Francisco, these were once poor / working class neighborhoods), and the high cost of housing is the top political issue. Meanwhile, there is a lot of buzz around companies which make content/apps for the internet and smartphones. Some of these companies are actually in Silicon Valley, yet their employees live in San Francisco.

All of this gives me a powerful sense of déjà vu.

I was in San Francisco during the dot-com boom. I was a lot younger, and I wasn’t aware of a lot of issues at the time, but a lot of the things I see and hear now feel like flashbacks.

Housing has been expensive in San Francisco for as long as I can remember, but during the dot-com boom, it got even more expensive, and commercial rents also went up. A lot of people talked about how San Francisco was turning into a bedroom community for the tech employees. Heck, I’ve heard anecdotes about young tech employees buying condos in the Tenderloin back then (the Tenderloin is another neighborhood known for having a concentration of poverty and crime).

The cost of housing became so expensive because the demand became so great. One of my high school teachers described the dot-com boom as a time when you could show up in San Francisco and get a job – the tough part was getting housing.

Of course, now the rents are even higher than they were during the dot-com boom, but as far as I can tell, the difference is only a difference of degree – pretty much every angle of today’s housing crisis in the San Francisco Bay Area seems like something which was going on in 2000.

One of the things about the dot-com boom is that very few of those companies ever made a profit. Likewise, very few offered any good or service which was more helpful to people than the alternatives. However, investor money kept on pumping in, for a while.

Once again, in the present day, we have companies with a lot of buzz and … no profits. I hear people making pitches for their startup which will make some type of app on public transit.

Speaking of public transit, about a month ago I saw an ad for an app which allows you to pay you rent with a debit/credit card at Van Ness Station. Assuming one has enough money to maintain minimum balances, it’s not hard to open a checking account and write checks to landowners, yet this company still thinks there is a market for this service. Aside from the high cost of the credit card fees, there are legal questions. I am not a lawyer, but my understanding on San Francisco law is that, even if there is no clause in the contract barring third-party checks, a landowner can legally refuse any check which bears the name of any party other than the tenant whose name is on the contract. The only potential market I can think of for this expensive service are young people with high salaries who are intimidated by the thought of learning how to deal with checks. Will their salaries remain high indefinitely?

Just as I was in San Francisco during the dot-com boom, I was also there for the dot-com bust. I’ll discuss that in Part II.