Rarely does a week go by at City Hall these days without the announcement of another local tech company’s expansion — a development that always makes Mayor Ed Lee visibly gleeful.
When Lee took office in January 2011, The City’s unemployment rate was a staggering 9.5 percent. By this March, it had dropped to 8.1 percent, and much of the improvement is attributable to the tech industry.
Lee constructed his 2011 campaign around such job creation, the lack of which had been the bane of The City’s existence since the housing market crash of 2008. In a city often seen as ambivalent or even hostile toward businesses, Lee has cloaked his support for San Francisco’s business community inside the edgy cachet of The City’s resurgent technology industry.
But while it’s difficult to argue against new jobs, San Franciscans who remember the dot-com bubble of the late 1990s are now seeing other shadows of that era.
The first tech boom boosted and ultimately redefined The City’s economy, but many incoming tech workers had an easier time landing jobs than scoring affordable apartments. Meanwhile, as the business models of some tech companies began attracting critical scrutiny, more traditional businesses began leaving town for cheaper digs. In the end, the bubble burst, leaving the local economy decimated by 2002.
Now, traditional industries that survived the first tech wave are warily eyeing the mayor’s attempts to reform The City’s business tax system. While leaders in the labor-intensive tech industry would like to eliminate San Francisco’s payroll tax, talk of replacing it with a gross receipts tax scares other business executives. And the types of business The City’s tax system favors will determine what kinds of workers San Francisco attracts.
The rapid growth of tech in the late 1990s also drove up the cost of housing, prompting many residents to move elsewhere. That gave rise to new eviction controls and, in some ways, tenants are better off today than in the 1990s.
But while the law still favors tenants, landlords have found new ways around the regulations. Rent control laws, which apply to units built before 1978, provide protection from unmitigated rent hikes, but only when current tenants stay put. As a result, some landlords have resorted to “buying out” tenants with one-time payments that clear the way for them to charge newcomers higher rents. Ted Gullicksen, the executive director of the San Francisco Tenants Union, expects more such buyouts in the future.
“Some people could be in a worse situation now, because the rents are just so much higher,” Gullicksen said. “If you do get evicted or bought out, the odds of you staying in San Francisco are pretty minuscule. Unless you are in that high-tech field, it’s hard to find a job, plus it’s hard to find an apartment.”
According to data released last week by the real estate site Trulia, San Francisco’s average rent has increased 13.2 percent since last year, the second-largest increase nationwide.
The mayor has an answer for that type of concern. After all, Lee rose through the City Hall ranks under Mayor Willie Brown — who symbolized unabashed support for business during the salad days of the first dot-com era — and he seems to have learned a few things from the travails of his old boss.
Lee’s discussions about The City’s new prosperity invariably mention the working class. He has urged today’s tech leaders to serve as a new generation of local philanthropists. He has endorsed so-called “unhackathons” for tech programmers to come up with solutions for social ills faced by The City. And he has demanded community benefit agreements from companies that take advantage of the mid-Market area payroll tax break.
Zendesk, the first company to do so, inked an with The City under which it will dedicate volunteers to local social services and open an online help center.
“What we wanted to make sure of was that there was not pressure to negotiate with every single company that decided to move in,” Lee said, “but have a master agreement that addresses how these companies can participate in issues that are impacting the neighborhood because of their presence, both positively and negatively.”
Well-connected tech investor Ron Conway — who led a well-financed committee to help Lee’s 2011 campaign — cites one other major difference between San Francisco’s twin tech booms. This one will be lasting, he believes, as social media companies look for the urban setting that best complements their products. At a February business event, Conway cited a survey of more than 100 companies that planned to fill 8,000 new jobs in 2012 alone.
Whereas five years ago 75 percent of Conway’s investment portfolio was centered in Silicon Valley, it is now evenly split between the South Bay and The City, he said. By the end of this year, he expects that San Francisco-based companies will become the majority of his investment interests. And this time it’s no bubble.
“This uptick is personified by the fact that these companies have real business models, which are completely validated and thriving,” Conway said. “If you can reduce unemployment in San Francisco by exploding the growth of tech jobs, a lot of other problems get solved as a byproduct.”