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Economy / Jobs

The downsides of being a tech hub: Housing disruption and inequality

San Francisco, Seattle and Dublin show what happens when a city becomes a global hotspot for tech jobs without planning to accommodate growth and change.

offices in Seattle
Amazon occupies a significant portion of office space in downtown Seattle. (Photo by Lindsey Wasson/Getty Images)

With the technology sector’s astronomical growth over the past two decades, there has been no shortage of cities vying to be the next Silicon Valley. But while there are many benefits to being a tech hub – from increased wealth to inflows of talent – there are downsides, too, including polarised inequality and increased pressure on housing and workspace.

While many of these are general “global city” problems, the effect is often more pronounced in tech hubs, which are forced to grapple with a lot of changes in a short period of time.

“Tech start-ups by nature grow very quickly,” says Molly Turner of UC Berkeley’s Haas School of Business. “Because of venture funding, which most of them rely on, a successful start-up is going to grow exponentially over the course of, on average, seven years. And that can be really challenging for cities. It takes much longer to build a building than it does to build an app.”

Dublin, Seattle and the San Francisco Bay Area are three well-established tech hubs. Although their tech sectors are not the same, they have encountered common problems that have coincided with and been exacerbated by technology’s rapid growth.

Below, we look at the data to unpack how the tech boom has, for better or worse, impacted these cities and ask whether the pandemic provides an opportunity for these locales to “reset” and cycle back on some of tech’s negative effects.

San Francisco

Home to Silicon Valley, the San Francisco Bay Area is often held up as the poster child for everything that can go wrong when a region embraces tech without adopting necessary policies to accommodate growth and change.

The most obvious example of this is in housing. Driven in part by the tech boom, the number of people employed in the Bay Area soared by 20% over the past decade, from 3.4 million in 2010 to 4.1 million in 2019. Population growth in that time averaged almost 100,000 people a year.

But growth in new homes failed to keep pace – just 200,000 units were added across the decade. By the end of 2019, rents in San Francisco and San Jose averaged more than $3,000 a month, while the Bay Area is the US’s most expensive place to buy a home.

Between 2008 and 2011, San Francisco stepped up its efforts to attract tech companies from nearby cities to the south. But it did little to prepare for the influx, says Tom Radulovich, a former Bay Area Rapid Transit board member and director of local non-profit Livable City.

“There was a monomaniacal focus on attracting tech jobs,” he says. “There were tax credits and ‘build, baby, build’ in terms of approving downtown office buildings and so on. But we didn’t build housing, we didn’t invest in a transport system. It was a very unbalanced growth.”

One of the effects of limited housing supply has been a surge in homelessness across the Bay Area. Although shelter concerns predated the area’s tech boom, they have been worsened by increased pressure on housing. In 2019, 4.5 in every 1,000 residents in the region were homeless, according to Department of Housing and Urban Development (HUD) data – an increase of 10% since 2007.

And while total wealth has increased in the area – our analysis found that the proportion of households in the Bay Area making over $100,000 went up 35% between 2010 and 2019 – inequality has risen as well.

One of the region’s key liveability issues is inadequate transport, which has been thrown into sharp relief by the pricing out of all but the wealthiest workers from key work centres. While tech companies provide Wi-Fi-equipped buses to shuttle their staff to and from work, other commuters have to endure long and growing journeys by car or contend with the region’s fragmented transit network.

It would be easy to blame the tech industry’s high wages for the region’s problems, but the Bay Area’s issues – particularly in housing – did not start with the arrival of tech.

“[The tech boom] is not the sole offender in creating the housing crisis; it’s an essential ingredient,” says Issi Romem, founder of housing research institute MetroSight.

Turner concurs: “This is a multi-decade problem that California has simply not kept up housing production to meet demand, and the most recent tech boom just came at the absolute worst time and tipped us over the edge.”

Central to the crisis are some of the most restrictive zoning laws in the US, which limit outward growth and densification. Efforts to allow more new construction have been met with resistance, but the dilemma of whether planning policy or tech companies are to blame for the area’s housing crisis is a false one, Turner says.

“The two are totally tied to each other,” she says. “These tech companies are so well funded and a lot have so much access to capital that they can afford to pay their employees more and more to keep up with the rising cost of housing… But if these cities had land use policies that had produced sufficient housing, that would have certainly helped.”

Radulovich similarly cautions that success depends on policymaking, not just the presence of tech. “Even though all these companies have come in, even though we’ve seen all this extraordinary growth, the streets don’t feel cleaner, transit doesn’t feel like it works better,” he says. “Nothing feels like it’s better maintained or adequately supplied.”

If these cities had land use policies that had produced sufficient housing, that would have certainly helped. Molly Turner, UC Berkeley

A number of tech companies have stepped in with solutions to tackle housing and homelessness, including Google and Facebook, which have committed to funding new housing.

While Turner welcomes tech philanthropy, she says the companies should help change policy, too.

“There’s no amount of tech funding that can solve this crisis at the end of the day,” she says. “It’s public policy that needs to solve the housing crisis, and I welcome seeing tech companies get involved more in housing policy conversations, because that’s where the leverage really is.”

Seattle

Some 1,400km north, Seattle is also grappling with soaring rents and house prices. Since Amazon set up its headquarters in the city in 2010, more than 500,000 people have moved to the metro, increasing the population by 15%.

In the decade through 2019, jobs in King County – which includes Seattle and Bellevue – grew by 30%, while housing stock went up only 12%. As a result, rents and property prices have skyrocketed.

“In urban economics, basic theory says that some of the key drivers of demand for housing are population growth, employment and wages, and we’ve had all three of those,” says Gregg Colburn, an assistant professor at the University of Washington.

Romem, Turner and Colburn agree that Seattle has been more pro-housing than San Francisco – zoning regulations allow some in-fill density in the city, and local officials have been more amenable to sprawl. But topographical constraints and policy shortcomings limit what can be done, Colburn says. Around 70% of the city is zoned for single-family housing.

“Unless we change the way we zone, we’re going to continue to struggle to satisfy the demand for housing in Seattle because there’s no evidence that tech’s continued involvement in the city will cease or even slow down,” says Colburn. As elsewhere, it’s the poor he says who have suffered most. “We see that in the form of really significant housing precarity and homelessness.”

According to HUD’s Point in Time data (known for its undercounting), the number of unhoused people in the city has surged by 20% since 2007, putting Seattle, along with the Bay Area, among the nation’s top four areas for homelessness. Research indicates that high housing costs are to blame.

“Seattle, San Francisco and Boston and places like that are the epicentre for homelessness because you’ve got really strong housing demand,” says Colburn.

Dublin

Dublin has established itself as one of Europe’s leading tech hubs. Airbnb and Google are among the companies lured to the city by a 12.5% corporate tax rate and Ireland’s membership in the EU.

But while the tech influx has helped drive down unemployment and regenerated parts of the city, the inflow of money and population has not benefited everyone – particularly less well-off residents.

“Local authorities appear incredibly willing to bend over backwards for these companies,” says Lorcan Sirr, an expert in housing at Technological University Dublin. “They seem to think that every job is a good job, including the high-paid, high-tech ones, without considering the broader impacts. But how you measure success in high-tech cities is if the changes float all boats – changes should benefit existing residents as well as the new people coming in. And I don’t think we’ve achieved that.”

Jobs in Dublin’s tech companies tend to be dominated by sales and advertising roles, which means that average salaries are lower than in the US – but the wages are still high. Analysis of data from Morgan McKinley suggests that the average Dublin tech salary was €71,757 ($87,069) in 2019 – well over the city average of €45,000.

While the boom has had its upsides, Aidan Regan, an associate professor at University College Dublin, says it’s not a sustainable strategy.

“It increases national income, provides taxation revenue and generates local demand, and in that sense, it’s better to have it than to not have it,” he says. “But I really don’t think it’s a sustainable growth strategy because the effects are very clear to see in terms of who wins and who loses.”

As in the other cities we have looked at, the influx of high-wage earners has had its most marked impact on the city’s housing market. This was, before 2020, compounded by the effect of short-term Airbnb rentals.

While the number of people employed by tech firms in the city is perhaps only 15,000, their impact – along with other highly paid people employed in related jobs – has been pronounced.

“All it takes is a small part of the workforce to have a relatively high-paying job in key parts of the city to have that price effect,” says Regan.

In the last quarter of 2019 prior to the pandemic, the average Dublin rent had almost doubled in a decade to just under €2,000 a month.

As elsewhere, these issues go beyond the tech sector. The 2008 housing market crash limited the supply of new homes and mortgages. Ireland has long followed a market-driven approach to housing, including the limited development of social housing.

“You had these companies opening up, expanding and employing more people, so austerity wasn’t felt at all in this sector,” says Regan. “People who are on good salaries couldn’t access a mortgage, so all of a sudden in a very short space of time, you have people in very good jobs on high incomes in the same rental sector as people in very low pay, precarious jobs… So you have these very different cohorts of people competing for the same housing, but there’s only going to be one effect: upward pressure, upward price.

“In that competition for a limited supply of housing, in all probability it’s those who work in these companies who are going to be more successful than everybody else.”

The country’s housing crisis has also contributed to a rise in homelessness, which has coincided with the tech boom. The Dublin region accounts for 27% of Ireland’s total population but 73% its homeless population – some 6,000 people at the end of 2020.

It’s not just the residential market that has borne the brunt of the growth in tech. As in Seattle and San Francisco, the influx of wealthy companies has increased demand for office space, pricing out companies with lower budgets.

The competition for living and working space in the city has ultimately benefitted those lucky enough to own land before the boom, Sirr says.

“If you scratch the surface – and people don’t really like doing this – you’ll find that it’s the landowners who were the real winners in cities that have become high-tech hubs, including Dublin,” he says.

Yet despite the downsides, Regan says there’s an absence of critique of the impact of Big Tech on the city and the country.

“In the collective psyche in Ireland… that the multinationals can do no harm, that if we didn’t have these companies and this sector, that Ireland will be poor, will be dependent on Britain,” he says, “there’s a real sense of, ‘We need the US multinationals, they’re our friend.’”

Post-pandemic, is it possible to reset tech’s negative effects?

The past 12 months have upended urban life around the world, including in tech cities.

Residential rents in Dublin, Seattle and San Francisco have fallen. City budgets have been decimated. The commercial real estate market has been deflated, and many tech companies have adopted long-term remote-working policies, leading to speculation of an exodus of tech from cities.

Some of these changes might offer an opportunity to reverse some of the negative impacts of urban tech booms.

In the last quarter of 2020, office vacancy rates increased to 11.4% in downtown Seattle and 16.7% in San Francisco, potentially opening up these cities for companies that were priced out of the market. Residential rents in all three cities have also fallen. The December 2020 rent on a one-bedroom apartment in San Francisco was down 23% from the previous year, according to Zumper.

Although Turner says lowered rents are likely to be short-lived, the increased availability of housing and office space is likely to have positive effects.

“Office rents at least look like they’re not going to recover fully for a long time,” she says, which may create opportunities for people and companies who otherwise couldn’t afford to set up shop in a pricey tech hub. “In the end, all this office vacancy may actually help these tech hubs stay competitive, because they need more entrepreneurs from different backgrounds to start and grow their businesses here.”

Turner says it’s unlikely that the dominance of the established tech hubs will be challenged. At the same time, tech workers opting to move to the suburbs won’t fix everything in the most oversubscribed cities.

“It was decades in the making, long before tech was ever here, and it will take decades to resolve,” she says. “Even though rent and housing prices have gone down significantly in these cities, they’re still not affordable or accessible to a lot of people.”

Crucially, the pandemic – while providing some potential silver linings – also raises new problems.

“The tech companies are doing great because everyone’s looking at screens all day,” says Radulovich. “But the actual city that was here prior to tech is really suffering.”

Turner concurs.

“A lot of people are spending their time on Twitter worrying about what’s going to happen to San Francisco and Seattle as a few tech companies move out,” she says. “I’m less worried about that. What I am really worried about is all of the people who’ve lost their jobs during the pandemic or who are about to lose their jobs when we have a failing social safety net…

“I’m really worried about the small businesses and all the people who work at those small businesses being able to survive in these regions, and that’s what I think we should be focused on – not worrying about which elite tech exec wants to move to Miami.”

Aisha Majid

Aisha Majid is a data reporter at New Statesman Media Group, where she splits her time between City Monitor and Press Gazette.