Bay Area's tech boom hurting businesses

Housing crisis makes it hard for some to live near

By AHIZA GARCIA, CNN BUSINESS
Justin Sullivan/Getty Images

SAN FRANCISCO (CNN) - When real estate developer Patrick Kennedy sought to grow his San Francisco-based firm, he faced a familiar challenge in the region: finding entry-level workers.

"We can't find janitors to work for $15+ an hour with benefits because no janitor can afford to live within a 1-2 hour commute of our building," said Kennedy, the owner of Panoramic Interests, a real estate firm that builds affordable housing options in the Bay Area.

The Bay Area's tech boom famously created an influx of companies, workers and jobs, but in 2012, it ignited a housing crisis that's made it difficult for many people, especially those in minimum wage or entry-level jobs, to live nearby.

Today, the average annual income to afford a studio in San Francisco is $80,560, up nearly $4,000 from last year, according to data from the National Low Income Housing Coalition. In comparison, a studio in New York City -- often considered the most expensive city in the U.S. -- required about a $60,560 annual income on average.

The skyrocketing costs show no signs of slowing. Affordable housing remains even more scarce as new tech businesses crop up and exacerbate the issue.

Professor Karen Chapple, who studies the governance, planning and development of U.S. cities and regions at the University of California, Berkeley, agrees, noting her research found what's happening in the Bay Area is worse than other U.S. cities.

"We have high tech jobs which generate a lot of service jobs: hair-cutting salons, nail salons and masseuses, yoga studios and dog care," Chapple said. "High-end jobs and low-end jobs [are] created at the same time, but you have a housing market that is really only producing for folks at the high end of the scale. There is a mismatch."

It's also hurting those entry-level workers who are paid an annual salary of about $50,000 in the region, Chapple said.

"If you're starting in the beginning of a career, are you going to choose to move somewhere where you have a two-hour commute?" she said

Kennedy said the problem is especially prevalent in trade jobs, such as electricians and plumbers. But the scope extends even further. Teachers, police officers and firefighters can't afford to live where they work. Restaurants have started using digital check-ins instead of hostesses and having customers get their own water and bus tables to offset a shortage of waiters. Even the tech companies drawn to the Bay Area for its resources and talent pool have had difficulty hiring college-educated entry-level workers.

Ryan Croft, the co-founder of TransitScreen, which powers screens with transportation info in cities, faced this challenge when deciding where to set up his company's headquarters. Croft moved to San Francisco from Washington DC when his company landed a contract with the city. His cofounder Matt Caywood stayed behind, so the pair could build out teams in their respective cities.

"We made a conscious decision to make the company bi-coastal," Croft said. "But eventually we consolidated and made one headquarters in D.C. ... San Francisco gets all the headlines, but the high cost of living is spreading down the peninsula and through the East Bay."

Indeed, the annual income needed to afford a studio in Alameda County -- part of the East Bay -- is $61,600 this year, up from $57,400 last year, according to the National Low Income Housing Coalition.

Croft said basing the company in Washington, D.C., allowed the company to save money without compromising on talent.

"We could get five engineers for the price of what we'd pay for three in San Francisco," he said. "We didn't need hundreds of thousands of dollars [to pay for talent]."

According to Glassdoor, most entry-level engineers in Washington, D.C., make roughly $75,000. In San Francisco, the same job regularly earns more than $100,000.

Both Croft and Kennedy argue the tech boom exploited the city's existing flaws. In addition to a chronic lack of housing options, unreliable high-speed transit is another major challenge.

"If people get pushed out further and further, there are fewer reliable ways to get to work, so they opt for a car," Croft said. "But in many ways, [owning a car] is more expensive so it makes it even harder."

Companies are forced to get creative. San Francisco-based company Grand Rounds, a startup that matches employers and workers to medical providers, is attracting staffers by being flexible about allowing them to work remotely. It also has offices in Maine and Nevada -- states with a much lower cost of living.

"We are seeing that it's difficult for folks," said Peter Navin, the company's chief human resources officer. "We want to be flexible in our approach."

Grand Rounds lets employees work in the San Francisco office as part of a rotation program instead of making it the center of the company's universe.

Chandler Isaac, a digital marketing specialist at Ground Rounds, was with the company for about a year and a half when they offered to relocate her to San Francisco in 2016. When she accepted, Grand Rounds gave her three months to find an apartment.

"I was prepared for the worst," Isaac said. "Everyone I knew said it would be difficult and we would have to be ready with cash in hand if we wanted to get the place we were hoping for."

She and her boyfriend eventually settled on a two-bedroom apartment for $3,150 a month in the East Bay, where rent is a little more affordable amd her commute is under 30 minutes. She moved from Reno, Nevada, where her higher-end three-bedroom cost $1,800.

The city is taking steps to try to fix its housing crisis. Mayor London Breed has committed $100 million to affordable "modular" housing, where parts of homes are built off site and transported to the city for quick assembly at a cheaper cost.

"If we're going to make San Francisco more affordable, we need to increase our housing stock," Breed said in an interview with San Francisco's ABC7 in July. "We have, between 2010 and 2015, created one unit of housing for every eight jobs."

One particular area of focus is providing more affordable housing for government employees, such as teachers, so they can live in the same community they work. Breed said she's also creating a new position to oversee and speed up the building permit process. Currently, it take years for projects to get approved and for construction on new developments to begin.

In 2017, San Francisco issued 6,270 building permits, according to data from real estate site Trulia. That's nearly double San Francisco's historic average number of issued permits. The increase is a positive step but San Francisco still lags behind the rate at which most other large US cities are building new housing.

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