A Conversation on Future Urbanism, Tech Hubs

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It was a really interesting selection of panelists with San Francisco Mayor Ed Lee, Yelp CEO Jeremy Stoppelman, former New York City director of planning Amanda Burden and Zappo’s CEO Tony Hsieh, who has been struggling to revive downtown Las Vegas, at Vanity Fair’s New Establishment summit yesterday in San Francisco.

I just wish the conversation were more interesting.

Vanity Fair architectural critic and moderator Paul Goldberger spent a lot of time talking about the revival of U.S. cities since the nadir of American urbanism in the early 1980s. Cities like San Francisco saw their population hit a trough around 1980 or so, as middle-class families fled for the suburbs. This has reversed over the last three decades with wave after wave of gentrification.

But Goldberger spent little time asking about where we are now. There is a pretty urgent rental crisis in cities like San Francisco, Los Angeles, Seattle and New York, as tighter lending standards have cut people out of the homeownership market and as regions like the Valley have produced tens of thousands of jobs but not enough housing. He also didn’t even ask Hsieh why his Downtown Project seemed to have partially imploded last week.

Anyway, here’s what they talked about (and I’ll just add some things that I think are interesting):

On Crappy Federal Policy Toward American Cities:

Goldberger asked about federal policy and whether we should care that the U.S. government’s policies are so tilted in favor of suburban over urban development. (Gas taxes, for example, are lower here in the U.S. than they are in Europe, shifting the balance in favor of automobile use. U.S. federal transit funds also favored highway construction more than they supported mass transit development in the 20th century, encouraging sprawl over in-fill development.)

“You will not see the federal government using the word ‘urban’,” Burden said. “We’re moving to cities because it’s a more sustainable way to live. The future of the world is in cities. Fifty percent of the world’s population is already living in cities and we’ll get to 70 percent. That is not recognized by the federal government, so the rest of the world is bypassing us.”

Every major city in the U.S., including San Francisco, is dealing with substantially less federal funding for both public and affordable housing. In San Francisco, it can take roughly $500,000 in land, construction, permitting and marketing costs to build one below-market rate unit, so the subsidies necessary to build even 1,000 permanently affordable units can get into the half-billion dollar range. Those subsidies used to come from federal or state sources, and now it’s hard to say where this money will materialize from.

Entitlement spending on programs like Social Security and Medicare will basically crowd out other basic functions of U.S. government over the next generation as baby-boomers retire, so metropolitan regions are largely on their own, argue urban theorists like Bruce Katz of the Brookings Institution.

On Government’s Role In Alleviating The Negative Aspects Of Gentrification

Goldberger asked about how cities should grapple with gentrification and when it becomes too much too quickly.

Mayor Ed Lee said, “It’s at the forefront of what I’m doing everyday. I’ve had a lot of discussion with community-based organizations whether they’re in the Mission or Chinatown. If we make decisions based on fear, we’re always going to end up paying twice. There’s fear of buses that take people to work. There’s fear of a sharing economy that isn’t producing the traditional taxi ride. There’s fear that companies will change the traditional ways that we do business. I’m trying to do is start conversations with the communities. If there’s a fear, there ought to also be a perspective where we can provide people with the link to success.”

He went on, “It’s a more delicate conversation. How do you turn a feeling of ‘I don’t want that development project,’ into ‘How can I use that project to benefit and support stronger communities?’ That’s where the conversations become more interesting. As we’ve re-developed Market Street, we’ve created Community Benefit Agreements.”

Lee was referring to these volunteership and donation commitments that tech companies who move into specific parts of the Mid-Market area have to make in exchange for a break on the payroll tax. Critics, who call this the “Twitter Tax Break,” have said that these agreements fall far short of resolving the stress that local non-profits and longtime residents are facing with rising rents. The tax break can be used for up to six years, but it’s worth adding that the payroll tax will be phased out for all San Francisco businesses over the next few years anyway.

He also pointed out a recent program called “Circle The Schools,” where tech companies have to form partnerships with local public schools and provide resources, volunteering or mentorship with whatever administrators or teachers request. (Conceptually, I think it’s a good idea. But it’s just too early to tell whether it’s a sincere and effective program, or a politically motivated one.)

“It’s my job to find those public-private sector links that will reduce that fear,” Lee said.

As for New York, Burden added, “Gentrification is a pejorative word. Gentrification is about improving an environment that has disinvestment. Businesses start to see more customers. Neighborhoods become safer. Suddenly you get a neighborhood that people want to be in and invest in. Then there comes a point where that improvement results in rising rents, rising prices and often displacement.”

She added, “So that’s the question for government. Everyone wants improvement and then they want it to just stop at that perfect point where it just seems to be balanced for everyone. There comes this question about where government should intervene. And should it intervene in rents? For stores? For apartments? There is a role for government to make sure that old neighborhoods have a sense of mixed uses and mixed incomes. But it hasn’t always worked. So is gentrification and displacement inevitable? Or what should government do to ensure density, diversity and affordability?”

How Gentrification and Development Happen Differently in New York and San Francisco

I should add that San Francisco operates under a totally different set of constraints than New York City does. In the 19th century, the U.S. legal system was more amenable to city annexations, and so in 1898, New York was able to incorporate Brooklyn, the then 3rd most populous city in the U.S. along with most of Queens County, the Bronx and Staten Island into a single municipal entity.

What that means today is that New York, a city of 8.4 million people, can make more coherent, unified regional transit and housing decisions. Under 12 years of the Bloomberg administration, Burden was able to re-zone New York City and its five boroughs to accommodate an additional million people (which is eloquently explained in a TED talk she gave).

A much younger region of the country, the Bay Area totally missed out on this. By the early 1900s, when San Francisco attempted to annex other cities in the wake of the 1906 earthquake, it was too late. Oakland rebuffed the advance. Then the advent of zoning in the early 20th century made suburbs and smaller municipalities much more resistant to consolidation because they could control the make-up of their own populations (often with grossly unjust racial and socioeconomic consequences).

So today, the 7 million-person region of the Bay Area has 101 cities and nine counties each doing their own thing. That’s why there are so many transit systems and none of it seems to make any sense. San Francisco’s MUNI system is a bunch of repurposed streetcar lines built by private entrepreneurs a century ago that were turned into a public utility after the automobile made them financially unsustainable. BART is a government-created and run system that was state-of-the-art in the 1970s but now has a lot of maintenance needs. The Caltrain is an old Southern Pacific line from the mid-19th century that is at record ridership during commute hours. (Hence, you can understand why Google buses exist.)

The region is somehow supposed to add an expected 2 million new residents by the year 2040. There is a plan to do this. But it’s not clear how enforceable it is because there isn’t a political entity or leader that is as empowered regionally as the New York mayor. The region’s cities, especially the wealthier ones in the historic heart of Silicon Valley like Palo Alto and Menlo Park, do very little to house all the extra workers that companies like Facebook are supposed to add over the next 10 years. The problem ends up being shoved onto poorer cities like Redwood City and then onto San Francisco and Oakland.

On top of that, San Francisco has a different culture around tenancy than New York does. San Francisco’s rent policies create a cultural expectation of lifelong tenancy. This is why the eviction struggles are really painful, because they tend to fall on older tenants. About 172,000 out of San Francisco’s 376,940 units are rent-controlled. The city’s rent stabilization ordinance limits rent increases to a pace that’s usually slower than the rate of inflation, which means that 45 percent of the city’s units are actually seeing rents decline in real economic terms. That leaves about 30,000 to 40,000 of the city’s units that are market-rate. Because the city has added 70,000 jobs over the last four years and 5,000 new housing units in roughly the same time period, the price differentials between the two pools of market-rate and rent-controlled units have exploded, creating enormous financial incentives for evictions.

In contrast, only 1.2 percent of New York’s roughly 3.2 million housing units are rent-controlled from the immediate post-war period. You basically have to inherit them. But there is another 31 percent that are rent-regulated, and the annual allowable increases are higher than what San Francisco’s board allows.

State and local law also intersect differently in New York and California. As part of an ambitious $41 billion effort, newly-elected New York City mayor Bill de Blasio is attempting to build 200,000 affordable housing units over the next 10 years largely through mandatory inclusionary zoning. That means that developers will have to build a percentage of affordable units for all the market-rate ones they construct. It’s a way of financing affordable housing without eating into government revenues, because the cost of creating subsidized units gets passed onto market-rate buyers.

San Francisco has inclusionary rules as well, but developers can get out of them by paying fees. This is partly because a real estate industry-friendly California state law passed in the mid-1990s called the Costa Hawkins Act complicates inclusionary requirements. This is also why housing activists consider the city’s rent-controlled stock a “non-renewable resource.” State law prevents cities from implementing rent control on units built after 1995. Tenants rights activists also point out that California’s Ellis Act, which is supposed to let landlords go out of business, is abused to take units off the market and turn them into Airbnb rentals or tenancies-in-common.

I think in summary, neither system is able to stop gentrification or displacement. But New York’s regional integration and better transit make for a more dynamically adjusting system where residents have to continuously (or constantly) re-evaluate their cost of living. In contrast, San Francisco’s orientation of growth control might help it a smaller-town feel. But market-rate rents can climb dramatically with even a modest amount of population growth, while elderly and longstanding tenants can end up in a pretty jarring and tragic situation if they face an owner move-in or Ellis Act eviction. If they are displaced, the San Francisco Bay Area has a weaker and less integrated transit system. That means displaced tenants can end up with a multi-hour commute, which is deeply disruptive to family and community life and on access to jobs.

On The Technology Industry Moving To Cities

More than five to ten years ago, startups were largely centered in the suburban South Bay, where hoards of low-rise office parks built in the 1970s through 1990s dot the sprawling landscape.

In the mid-20th century, the industrial park — which was pioneered by Stanford University — was considered an architectural reaction to the polluted and noisy factories of the industrial city. The suburban office park was supposed to be the future of American work. It had lawns, flowers and trees, instead of smokestacks and soot. You have to recall that a century ago, U.S. cities probably felt more like dirty and polluted coastal China, because the country was economically much more dependent on manufacturing.

These suburban leanings held strong for many decades and the locations of the tech industry’s biggest players reflect this. Google is based in Mountain View. Facebook is in Menlo Park. Apple is Cupertino.

But today, the industry’s youngest companies like Twitter, are all in San Francisco in old buildings that have been architecturally re-purposed and renovated. In this light, Facebook and Apple’s attempts to build Gehry or spaceship-like office buildings feels oddly retrograde.

Tech companies are getting even more aggressive with urban commercial real estate. Uber just purchased a giant plot of land in Mission Bay to build its own headquarters, while Salesforce is going to move into the city’s tallest tower later this decade. I’ve written about some of the reasons for this already; people are marrying later and switching jobs more often. This creates a larger pool of single workers that favor the serendipitous interactions and unorthodox sense of community fostered by dense urban environments.

“I don’t think there was any deliberate attempt to rob Silicon Valley of their talent,” said Lee. “We just wanted to make this city sustainably exciting.”

Lee added that the city has 2,168 tech companies employing 56,000 people. (That is 6.7 percent of the city’s population. So if you are one of those people who complains that everyone in San Francisco is in tech, you are probably not working hard enough to diversify your social circle.)

“So much of the excitement of the city is tied to innovation, and we here in Silicon Valley have been leading the way,” said Yelp CEO Jeremy Stoppelman. “I think it comes down people connecting with one another. If you’re trying to create what’s next, there’s nothing more important than having a complete knowledge of what’s current.”

Stoppelman added that he thinks clustering and face-to-face teamwork is important even if the Internet makes distributed companies increasingly possible. (There are tech companies like WordPress that are known for being very culturally supportive remote or nomadic work.)

“There is nothing that can replace that in-person collaboration and communication. Part of it is non-verbal,” he said. “There’s just something about being able to sync up every day and advance your idea.”