There are rumblings around town about a tech bubble like the one that burst following the dot-com boom in the late 1990s. Yet while tech growth in San Francisco has unquestionably fueled the economic recovery here, there is insufficient evidence to make the case for a bubble. Nonetheless, it is not too early to start thinking about what a bust could mean for the economy.
At the annual San Francisco Chamber of Commerce ForecastSF event, Wells Fargo Securities chief economist John Silvia presented data showing that high-paying tech jobs are boosting housing prices. The last time San Francisco saw rents increase like this was during the dot-com boom, and we all remember how that ended.
But there are stark differences between the last boom and this one. For instance, Silvia noted during an interview that a lot of money was thrown at startup companies in the last tech boom, and IPOs were the norm even for businesses that had barely gotten off the ground.
This time around, they are the exception, and even high-profile IPO flops like that of Facebook tend to be connected to real companies with real revenue streams. The majority of the companies raising big money now are ones whose products are already used by large numbers of people.
Mayor Ed Lee, who has positioned tech at the forefront of his economic plans, also believes that talk of a bubble is unwarranted. He said the rush of tech jobs is filling vacancies in office space because of the economic downturn, not building new buildings for companies.
“I don’t think we are really started yet, therefore any predictions of us being in a bubble, to me, don’t even have a premise yet,” Lee said. “We still have a ways to go to fill all of the vacancies.”
But just because we are not now in a tech bubble does not mean that people shouldn’t look for signs of one. Silvia said during his speech that he does not believe this is a bubble, but in an interview he questioned the sustainability of growth in the tech sector, especially in the social media sector that is the keystone here. It is not that many companies in the industry won’t succeed, it is just that if dozens of new startups enter the market each year it is far from clear whether there is a revenue model to sustain them all.
So from the Mayor’s Office to the Board of Supervisors, city officials should hope for the best in creating jobs in San Francisco, but also plan for the worst. Right now, high-paid tech workers are flocking here, pricing out low- and middle-income people and families. Losing longtime residents for what could amount to a short-term boom is not acceptable.
Government cannot help every company that starts here thrive and keep all of its workers employed. Businesses of all types fail each year and close their doors, leaving workers unemployed. The key moving forward seems to lie in diversification. We should think of job creation like a stock portfolio, and not put all of our hopes in any one employment sector.
After all, every Bay Area tech boom — from semiconductors to PCs to software to biotech to Internet firms — has ultimately consolidated into a handful of enduring companies.
Municipal overreliance on a single industrial sector always turns out badly in the end.