The Big Unknown
With the unprecedented number of IPOs about to take place, here’s a look at what the near-future could hold for San Francisco.
The San Francisco real estate market has been on a seemingly relentless climb—overtaking New York as the most expensive city in the country sometime last year. And things are only going to get worse (or better, depending on your perspective) from here. A bevy of billion-dollar IPOs are set to take the city by storm and it’s anyone’s guess how housing at all levels will be affected. Lyft, Uber, Slack, Pinterest, Postmates, and Airbnb are all slated to go public this year and, at least anecdotally, sellers have already started taking their houses off the market in anticipation. According to an article on Medium, commission-hungry real estate agents have taken to lurking outside Uber headquarters, leaflets in hand.
National outlets such as the New York Times and Forbes have focused on the inevitable increase in demand for high-end housing near Mid-Market, South Beach and other tech-heavy neighborhoods (Lyft has offices in both China Basin and Downtown Oakland). The New York Times described with a barely veiled glee the predicted onslaught of nouveau riche excesses including electric bikes, ice sculptures, and perhaps most baffling of all, private concerts featuring Devo and Flock of Seagulls. But as history shows, these developments will reverberate throughout the entire Bay Area and across all income levels.
Patrick Sisson, reporting on the phenomenon for Curbed, states, “Talk of IPOs and potential IPOs has everyone thinking about money, home values, and the threat of another prosperity bomb accelerating the city’s already sky-high cost of living.” As a local, I can personally attest that the topic has come up at just about every social function that I’ve attended so far this year (and no, I wasn’t the one raising it).
In a very timely study released by UCLA and University of Pennsylvania earlier this year, researchers were able to “empirically demonstrate the positive impact of initial public offerings (IPOs) on local housing prices in California from 1993 through 2017.” And furthermore, the authors concluded that the larger the IPO, the larger the effect on housing prices. During that time period, we are mostly talking about isolated events (Facebook, Twitter). The upcoming number of unicorn IPOs planned for such a short period of time is pretty much unprecedented.
A recent blog post by Redfin paints a very vivid picture of just how large the numbers we’re talking about are. Titled, “Together, Lyft’s Employees Could Buy Every Single Home for Sale in San Francisco With Their IPO Cash,” the post goes on to point out that Lyft is only one of the proposed big IPOs poised to descend on a city that’s already been battling insufficient inventory issues for years.
Mayor London Breed ran and won on a platform that made the housing crisis the city’s top priority, but since taking office, the needle hasn’t moved much. According to the city’s new housing report, 2018 actually saw less construction than the previous year, which was already down from the year before. In her state of the city speech, Breed stated, “If we had started building more aggressively 20 years ago, we wouldn’t be in this situation today.” But barring a time machine, what will it take to meet the current housing needs of the city, not to mention this new “prosperity bomb”?
Thus far this year, Docusign has already hosted two sold-out events about the upcoming IPOs and their effect on real estate pricing. Topics included using big data to predict the “demographic makeup change after said IPOs” and “How previous technology booms affected the Bay Area buying demand.” The second event, which was added after the first sold out, was the setting for the hyperbolic intro for the New York Time’s now infamous article “Thousands of New Millionaires Are About to Eat San Francisco Alive.”
And of course, while the newly minted millionaires may be the most visible result of a successful IPO, it’s worth bearing in mind that an IPO is often the first step in a company’s plan for aggressive growth. That means hiring employees—and all those new employees are going to need places to live. These workers are mostly in their 20s, making an income that is at least $100,000 (the average for an Uber employee, according to Payscale), and ranging upward to $200,000 (what an engineering manager can expect to make at Pinterest, according to Glassdoor). And yet, according to a survey of over 3,600 workers from 21 tech companies (including Lyft and Airbnb) by community app Blind, 60% say they simply cannot afford to buy a house in the Bay Area.
In March of this year, real estate site Zumper released a report stating the average price for a one-bedroom in San Francisco hit an all-time high of $3,690 per month and speculating that “With the brimming excitement of all the tech IPO’s [sic] in the Bay Area, it seems the luxury end of the rental market is being hit first. Though there may be a ton of cash flowing through the city and surrounding areas soon, many of these workers will not immediately invest in a home and may, instead, take their money to both travel and upgrade their rental situation.” Zumper followed up with a map of the city’s rents by neighborhood and they are highest in Soma, South Beach and Fidi, with rents generally decreasing as you move west.
What are all of these relatively wealthy renters looking for? According to a 2017 press release from HotPads (a San Francisco rental site owned by Zillow), the most popular amenity featured in their listings are tech shuttles. “Shuttles are featured in nearly 10 percent of San Francisco’s rental listings, compared to less than one percent of listings in other big cities.” Other popular keywords include Bosch appliances, gourmet kitchens, and concierges. And the Rentals in SF blog has this advice for landlords: “Fix up your fixer-uppers. Smaller units are decreasing in value as renters opt for more bedrooms. But nice, clean and updated units are still holding their value among the techie crowd.” Access to public transportation and large common spaces are other coveted perks for millennial renters.
The takeaway: if you are lucky enough to be a landlord in a centrally located area or near a tech shuttle stop, now could be an ideal time to refresh your unit. Yahoo! News reports that Anthemos Georgiades, CEO of Zumper “foresees a measurable uptick in rental pricing this year in San Francisco of around 10%.”
And inevitably, as units trend toward high end and rents continue to skyrocket, long-time residents may find themselves displaced. CNET points out that thanks to changing demographics, “you’re now nearly twice as likely to run into a millionaire in San Francisco than someone who’s black.”
In an op-ed for Business Insider, 30-year local Laura McCamy laments, “The Bay Area is no longer a place where a young person can live a bohemian life rich in ideas but short on cash.” And in a viral story on Medium about the exodus of artists from what was once a haven for creativity, Diana Helmuth muses, “They aren’t techies; they had the audacity to want something besides tech. They are some of our best, most creative, most hardworking people—and you are getting them. We are losing them.”
Katherine Tom is a San Francisco-based freelance writer.