Updated on April 19 at 1:28 p.m. ET.
There has never been a town like the one San Francisco is becoming, a place where a single industry composed almost entirely of rich people thoroughly dominates the local economy. Much of the money that’s been squished out of the rest of the world gets funneled by the internet pipes to this little sliver of land on the Pacific Ocean, jutting out into the glory of the bay. The city now sits atop a geyser of cash created from what the scholar Shoshana Zuboff calls “behavioral surplus”—the natural resource created from your behavior, which is to say your mind.
Literal colonies of the working poor now cling to forgotten streets in RV communities. Homeless encampments are stitched onto any liminal plot of land. To lose your apartment doesn’t mean moving one neighborhood over but three cities away, to Antioch or Gilroy or Stockton.
But wait, it gets worse.
This year, eight major tech companies are expected to hold initial public offerings. The first, Lyft, took the public-market plunge last month. Yesterday, Pinterest did. Airbnb, Instacart, Palantir, Postmates, Slack, and Uber remain. Amazingly, all but Palantir are headquartered in San Francisco, currently home to only five other public software companies—Dropbox, Salesforce, Square, Twitter, and Yelp.
Every Uber ride in Minneapolis makes a Bay Area Victorian a smidge more expensive. Every small business running ads in Little Rock, Arkansas, raises a tower a tiny bit higher. Every Pinterest board in Provo, Utah, reshapes this place, where people went to prom and repaired mufflers and dreamed of parrots and poetry. San Francisco is now the town that apps built.
And while digital space is seemingly infinite, San Francisco has an extremely limited housing supply. Only 5,471 properties changed hands last year out of almost 400,000 housing units. So what will happen when billions of dollars in stock options can become cash anytime someone clicks Sell?
The common wisdom is simple: housing Armageddon.
But even the end times have a structure. Much of what the world knows about the tech world’s effects on San Francisco’s real-estate market comes from three sources: house-hunting lore (“They bid 400 grand over asking! All cash!”), realtors talking up their industry’s prospects, and aggregated market data from firms like CoreLogic. The numbers point to crazy market dynamics: The median home price hovered around $1.3 million in 2018.
But precisely because the tech industry has become so ubiquitous, blending in seamlessly with the old-line wealth generated by hometown firms like Bechtel, McKesson, Levi’s, various banks, and more obscure fortunes, it’s been hard to disentangle what all those engineer salaries and options are doing in the world.
At least until Deniz Kahramaner got interested. He’s a 20-something Stanford-trained data scientist turned real-estate agent, and he wanted to understand who was driving the local housing market. When he founded Data Bay Area, a real-estate group affiliated with the unicorn start-up Compass, he came into a common data set of property records. Title companies, which are the internal machinery of the real-estate market, generate business for themselves by giving away the data on who owns all the properties in a city.
“Historically, realtors have used it to spam people,” Kahramaner told me. But as he looked at the records of every property purchase in San Francisco, his data-science background saw not marketing information, but analytical potential. Most realtors think about where property is purchased, not necessarily who is doing the buying. “I thought, Wow, this is an incredibly rich data set. You can see who bought what,” he said. “Why is no one analyzing this!?”
So he did, creating an unprecedented data set about the nature of San Francisco’s home buyers that allows his analysis of the potential effects of the IPOs on the city to go one layer deeper. His research suggests that the boom is going to be spikier than anticipated, concentrated in just a few neighborhoods, at least at first. It will also proceed more slowly than most people are anticipating. Shares are generally locked up for six months after a company goes public, but the bulk of the money probably won’t enter the market for a year or two, Kahramaner believes.
But don’t get too excited: The money is enormous, and the prospective new buyers dwarf the available inventory, especially at the top and bottom of the financial scales.
Kahramaner is a person matched precisely to his work. Identifying and analyzing data about individual people has been his literal job—first at LinkedIn, then at Accompany, which built software to create profiles of businesspeople through their public internet footprints. The title-company data presented a very similar challenge: He had a name and a city on the title. If he could figure out who they were, he could create a data set of home purchasers in the city, which, to my knowledge, doesn’t exist anywhere else in industry or academia. Then, he could use it to answer questions like: How many Uber employees bought homes in San Francisco in 2018? Or, more structurally, what percentage of San Francisco home buyers come from the tech industry? And maybe, ultimately, how much and where might a flood of new millionaires affect the city most?
So Kahramaner built software that searched the web for the names of the property owners in the data set, and connected them in big graphs to the entities listed in their LinkedIn, Crunchbase, or other business profiles. Then, he paid humans to go through and match the purchases with companies and industries. It’s painstaking work, which helps explain why no one else has built such a data set.
It’s also not definitive. First of all, foreign buyers and the very wealthy often use LLCs to purchase homes anonymously. Second, there are buyers with generic names who can’t be definitively connected to a company. Third, there are people with no public profile at all.
But, taking all that into account, Kahramaner’s team ultimately found industries and companies for 55 percent of the home purchasers in San Francisco in 2018.
Fully 51 percent of them worked in software. They bought in specific, desirable neighborhoods closer to San Francisco’s tech companies, as well as the highways and train lines that lead south into Silicon Valley. They were less likely to buy in the foggy Sunset, which is the worst commute to tech businesses.
Historically, the south side of the city was racially and ethnically mixed, a patchwork of different communities brought by the work that has pulsed through the city, as well as the home of the nation’s most prominent queer community. But as industrial work trickled out of the city, the tech industry moved in, bringing highly educated white people who make lots of money into formerly working-class areas. As shipping once pressed the city up close to the bay, the capital flowing out of tech has exerted serious southeasterly pressure on a city that long concentrated its wealth on the north side.
Fascinatingly, Kahramaner could even list the number of buyers from each tech company. They were concentrated in the older tech firms. The top five make sense: Google, Apple, Salesforce, Facebook, LinkedIn. What’s missing from the top of the list are all the soon-to-IPO San Francisco companies. His data show that their workers purchased only 37 homes in 2018 among all seven of the SF firms. By and large, their money is still on the sidelines of the real-estate market.
Which might be the worst news for San Francisco’s housing market. The amount of cash that will be flowing out of these IPOs absolutely dwarfs any previous IPO cycle. Kahramaner estimated the total valuation of the biggest IPOs to be at least $250 billion. A decent fraction of that will end up in the hands of employees. After talking with some investors, his team created a rough hypothetical “cap table,” which describes how much money various employees might make, depending on when they were hired. Using this model, Kahramaner estimated that 5,000 new buyers will be entering the market, and his team attempted to show at what price points they’d be able to buy. He foresees 3,885 new buyers looking for houses less than $3 million, in a market in which fewer than 6,000 homes total sell per year. At the top end, it gets even crazier—with more than 1,000 buyers looking from $3 million on up.
If you’re a Bay Area resident like me, you have probably reached the stage of reading a real-estate story where you’re hyperventilating into a bag in between vertigo spells. You imagine all these IPO money explosions resonating together, the blast racing out of SOMA, reaching your neighborhood and pricing everyone out as you become part of a secondary explosion, racing 10, 20 miles farther out to El Cerrito, Richmond, San Mateo, Fremont, Vallejo, pushing people there outward to Fresno, Austin, Portland, Denver.
You can picture the longer commute, feel the rent going up, the people getting pushed out of their homes one way or another. People fight simple neighborhood improvements because to be desirable is to be devoured.
But while in individual neighborhoods the IPOs will create intense pressure on prices, as a whole, these IPOs will probably leave only a small, but detectable mark on the Bay Area housing market.
For example, the market in Marin has appreciated, but it’s remarkably removed from San Francisco and Silicon Valley because public transportation there is limited. “It’s not like every day the phone rings and the guy on the other end of the line is like, ‘Hey, I’m a new millionaire,’” says Rob Spinosa, a vice president of mortgage lending at Guaranteed Rate in Marin County. “We’re not seeing that.”
Kat Carroll, an agent with Compass Real Estate, works in San Francisco and the peninsula that contains Silicon Valley. “The peninsula, though we’ve had a strong spring, does not have the same kind of frenzied energy,” she says. “I don’t think the IPOs are going to affect down there the way they might in San Francisco.”
The most comprehensive academic study of the effects of IPOs on local housing prices, which studied every IPO from 1993 to 2017, found that prices within 10 miles of a company’s headquarters rose just 1.8 percent in the run-up to and aftermath of the public debuts relative to surrounding areas. Now conditions are a bit unprecedented, in the sense that so many companies from such a small part of the region are about to go public. And even a 2 percent change in a huge area is kind of a shocker to an economist. “We thought of [the effect] as something big,” Barney Hartman-Glaser, the IPO study’s co-author and a UCLA economist, told me. “Something bigger and, given our methodology, we wouldn’t have believed it.”
It’s also possible that these IPOs could turn out to work differently from ones in the past. For one, the companies have been around longer, so early employees of Uber, for example, have had a chance to cash out. “I would say that everyone took at least some part in that,” says Josh Mohrer, the former general manager for Uber in New York, who now runs several Uber alum organizations. More of the companies’ shares are also held by major investors who put money in late than in previous IPOs, too. Or maybe a major global economic recession will send tech share prices tumbling and postpone this flood of money coming into the real-estate market.
But if the current trends hold, San Francisco will remain the poster child for the economic effects of tech companies taking control of urban areas. The interconnections of the global economy are sometimes difficult to see, but not in this case.
The planner and author Samuel Stein traced the role that real estate plays in the modern metropolis in his book, Capital City. Wealth that works like San Francisco’s—globally derived, locally applied—is common now. But nowhere matches this city’s collision of the dematerialized economies of finance and technology with land, the need for shelter, the concept of home, and a place that so many loved when they could afford to live there.
“The force behind these trends is the growing centrality of urban real estate to capital’s global growth strategy. The price of land becomes a central economic determinate and a dominant political issue,” Stein wrote. “The clunky term ‘gentrification’ becomes a household word and displacement an everyday fact of life. Housing becomes a globally traded financial asset, creating the conditions for synchronized bubbles and crashes.”
Except in San Francisco, the bubble just seems to keep growing, and no one who loves or hates that can quite figure out how it might stop.