Along with sourdough bread, impossibly steep hills and the Golden Gate Bridge, San Francisco is known for having more billionaires than any US city west of the Mississippi. Seventy-four to be exact. That’s not to mention the nearly 150,000 millionaires that live in the Bay Area.
And those numbers are about to multiply.
If all goes as planned, 2019 will be a year of tech IPOs. San Francisco-based companies including Airbnb, Pinterest and Slack are expected to issue initial public offerings, along with ride-hailing rivals Uber and Lyft. Analysts think Uber, the world’s highest valued private company, could pull in as much as $120 billion from public funding, making it the biggest IPO in US history.
‘It’s huge,’ Matthew Kennedy, senior IPO market strategist for Renaissance Capital, said of Uber’s potential valuation. ‘Its IPO will result in a lot of overnight millionaires.’
If history is any guide, they’ll buy new homes and cars, throw wild parties, invest in wineries in nearby Napa and Sonoma, and possibly even install deluxe bomb shelters (the next big thing for tech’s moneyed set). Those IPOs also mean rising housing costs.
‘They’re already thinking of ways of how they’re going to spend that money,’ said Brian Solis, principal analyst at market research firm Altimeter Group. ‘It’s going to affect the city in a lot of positive and negative ways.’
Creating brand-new millionaires has been a Silicon Valley rite of passage for decades — especially during the dot-com boom when working for a startup was practically synonymous with an IPO windfall. And it didn’t end with the dot-com bust. The New York Times estimated that more than 1,000 Google employees became instant millionaires when that company went public in 2004. Facebook’s IPO in 2012 reportedly created ‘thousands of millionaires,’ according to Reuters. And, according to financial analysis firm PrivCo, Twitter is said to have made 1,600 new millionaires in 2013.
‘This wealth is coming from disruption,’ said Deepa Varma, executive director of the San Francisco Tenants Union. ‘The concern is this creates more inequality.’
Haves and have-nots
Becoming an overnight millionaire is great news for a relative few. For everyone else in San Francisco, not so much.
The birthplace of the Beat Generation of the 1950s, and of the 1960s counterculture movement, San Francisco is famous for embracing artists, activists and the outright weird. It’s where the Human Be-In and the Summer of Love took place. And even today, participants in the annual Folsom Street Fair or Bay to Breakers footrace wear outrageous costumes or even nothing at all.
But that character of San Francisco is changing as the city’s become the desirable place for young tech workers to live.
The desirability is why fleets of corporate buses ferry thousands of SF-based tech employees 40 miles south to Google, Apple and other Silicon Valley workplaces. And it’s why dozens of major tech companies — many of which were able to negotiate significant tax breaks from the city — relocated or opened new offices in San Francisco.
It’s also why San Francisco has become a stark example of a haves and have-nots situation: Where well-heeled employees walk past homeless people huddled in doorways and sleeping on top of warm steam vents. As more tech workers have moved into the city, home rental prices have shot up, vacancy rates have plummeted, and the homeless population has swelled.
‘We’re one of the leading creators of inequality in the country if not in the world,’ said Richard A. Walker, professor emeritus of geography at the University of California, Berkeley, and author of a new book on wealth and displacement in the Bay Area. ‘We’re creating multimillionaires and billionaires faster than any other place. It does not trickle down to a lot of the workers.’
Cost of disruption
Every year the federal Department of Housing and Urban Development looks at US cities’ median income and average housing costs to calculate what constitutes low income. In 2018, the department concluded that a family of four earning up to $118,400 is low income in San Francisco. That number is the highest in the nation.
‘The lower 80 percent of the population can’t afford to live in the Bay Area,’ Walker said. ‘They can’t make a living wage because costs keep getting driven up.’
‘The problem with the housing market is already massive excess demand,’ Walker said. ‘Housing takes a long time to build. There’s a lot being built, but it cannot possibly catch up.’
People who don’t make six figures — including teachers, artists, service workers and nonprofit staff — are being forced to move to less-expensive cities.
San Francisco has also seen an exodus of its once thriving black population, according to The New York Times. Roughly 5 percent of the city is African-American, down from more than 13 percent in 1970. That means you’re now nearly twice as likely to run into a millionaire in San Francisco than someone who’s black.
In effect, 20- and 30-something tech workers have been displacing the people who gave the city its character. And now, with the upcoming surge in millionaires, that’s just going to intensify.