The bubble is back - Page 2

City policies are encouraging a new tech boom — but have we learned any lessons from the last one?

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But CEO Mikkel Svane told us the tax break wasn't a big factor in choosing this location. He knew they wanted to be in San Francisco and he just liked the space. "The people here want to be a part of a dynamic culture and not on a big campus in Silicon Valley," he said. "For a technology company, being here where everything is happening is important."

And even though the new bubble has yet to reach its full proportions, small businesses and nonprofits in the area are already finding landlords jacking up rents in anticipation of the well-heeled new arrivals.

As with the last dot-com boom, some people are going to make a lot of money and spend it around town, and some of it will probably trickle down to the rest of us. But what price will the city and its residents pay for that bump, and what kind of city will this become? Have we really learned anything from the disaster of the first tech boom?

 

DUELING ECONOMISTS

The question of whether this tech bubble — and Mayor Lee's focus on jobs — is good for San Francisco involves many realms, but at its center is a question of economics. Does it make economic sense to offer public subsidies and other incentives to boost the tech sector?

We consulted three San Francisco economists with expertise on the situation and a range of perspectives: Tapan Munroe, a business-oriented economist and the author of Dot-Com to Dot-Bomb: Understanding the Dot-Com Boom, Bust, and Resurgence; Peter Donohue, a longtime consultant to cities and unions and principal of PBI Associates; and Ted Egan, the city's economist.

"I think San Francisco is sitting pretty right now," Munroe said, noting that tech companies and employees are naturally drawn to this vibrant, culturally rich city. "Young people like to be in San Francisco more than the Silicon Valley...It's such a unique place, we are so fortunate to live here."

Monroe said San Francisco is in a league of its own and it doesn't really have any direct competitors in the region, so tax breaks and other incentives to lure businesses here don't make much of a difference. High rents and living costs are a factor, he said, but "the main thing the city can provide is quality of life."

He also doesn't believe this current tech bubble is going to burst like last time, when the Internet was still new and venture capitalists were throwing money at every kid with a good idea or cool URL. "We're not seeing anything like that this time," he said. "Last time, people went crazy."

This time around, the seemingly crazy stock valuations on tech companies might make more sense: "The global economy is very much being guided by mobile technology. The world is moving to mobility so the valuations have some justification," he said.

But he added: "The market will speak. If they can't make money in the next five years, they'll be gone."

That's precisely the concern that many people have voiced, that Twitter will avoid paying taxes to the city as it beefs up and goes public — creating another litter of young millionaires in the process — and that it may fold before its six-year tax holiday ends, leaving little in city coffers. And along the way, the bubble will raise rents and displace the working class.

"Rising prices displace people, that's just a fact of life," Monroe said. "That's the way the market works, but it has social impacts."

More progressive thinkers dispute that kind of fatalism, saying it isn't some all-powerful "market forces" that are threatening to remake San Francisco but a certain brand of speculative, monopolistic capitalism that is being aggressively pushed by a handful of wealthy investors and their political partners.

Comments

Is it more feasible to build in an already dense environment? Or is it more feasible to expect all of the less dense cities ringing the bay to build more densely.
These are cities which have no interest in being as densely populated as San Francisco, and are places which are often populated by people who enjoy the relative density of their chosen home.
To expect other cities to densify to the degree SF has - even in places like the outer richmond, is an extreme pipe dream.

To the other poster who thinks that if we build some housing then we should build for 5 million people because thats what will happen:
It's nice to think that everyone in the US wants to live in SF, but thats just not reality. Not everyone wants to live here. We can do a better job with housing both the people who already are here, as well as a portion of the people who want to move here than what we are doing now. There is no valid reason to leave development lots undeveloped in prime SF other than peoples irrational need to control their environments.

Posted by Greg on Feb. 16, 2012 @ 11:45 am

Is this some kind of bizarre over-long troll? You don't want Stanford, Cal and UCSF because they lead to an educated successful population?

You are the one who should move, hopefully to someplace like Cleveland, so you can see what kind of economy your madness creates.

Posted by Guest on Feb. 20, 2012 @ 9:42 am

But of course the NIMBY's and activists don't really want affordable housing, because then they'd be out of a "job".

Posted by Guest on Feb. 15, 2012 @ 4:08 pm

who don't rent out their properties. Progressives are always opposed to the tyranny of the judicial system - except when they want to use it for their own means.

Posted by Guest on Feb. 15, 2012 @ 7:00 pm

Guest wrote: "And the city's economist is surprised rents would rise so quickly? Wow, apparently anyone can be an economist, no matter how dim-witted."

So funny and so true.

I heard someone from the city's economic department (I think it was Mr. Egan) testify in front of the BOS last year that a rent tax would cause rents to increase. What?? Where did he make that up?

Apparently Mr.Egan studied economics in Soviet Russia where they tried - and failed miserably - to match prices to costs. If he knew about the real world in the US and other capitalist countries, he would have learned that rents are already as high as the market will pay because - guess what - landlords are profit maximizers and costs have NOTHING to do with the rents landlords charge.

Anyone - including even a "trained economist" - who can't compare two reasonably similar apartment or commercial buildings - one with a low Prop 13 value and no mortgage, and one with a high Prop 13 value and huge mortgage - and not see that the rents charged are EXACTLY THE SAME, obviously is not very well-versed in the way economics works in the real world.

He sounds like a perfect hire for SF, a city famous for its mayors and BOS who give great soundbites about an "inclusive, progressive city," while in reality the city rapidly morphs into a place where only millionaires and multi-millionaires (and a few token poor people) can afford to live. Hell yeah Mr. Mayor and (most) BOS members: we need more high-paying technology jobs, more millionaires, and ever more multi-millionaire transplants from India and China. There's $3 Billion of "free" real estate money" for landlords and property speculators just by getting rid of the lower and middle income "off-brand" San Franciscans and replacing them with shiny new million dollar "brand name" replacements. The politicians and city bureaucrats are doing a great job, so please keep up the good work.

Posted by Guest on Feb. 15, 2012 @ 9:46 pm