San Francisco is down — but don’t count her out!
Podcast Transcript of Mykel Ferrantino’s Never Too Late To The Game’s Monday Morning Real Estate Update, September 14, 2020.
Introduction
San Francisco is the go-to punching bag for conservatives claiming that the city’s liberal policies have caused record homeless, vandalism, petty theft crimes and streets riddled with trash, human feces and discarded needles.
Yes, San Francisco has all those things but it’s not because of the city’s “so-called” liberal policies.
San Francisco’s problems are primarily due to two reasons: income inequality and scarcity of affordable housing options.
Make no mistake, unless we do something, similar situations will happen in almost every major city in the United States.
Well-meaning policy makers and perhaps some not so well-meaning, both liberal and those masquerading as liberal, have instituted policies in an attempt to address the housing, homeless and crime problems of San Francisco.
When our now governor, Gavin Newsom was mayor (2004–2011), he and Angela Alioto, a then city supervisor (now philanthropist and humanitarian) had comprised a system to get the homeless housed. The plan was working but unfortunately when the new mayor took office, the late Ed Lee, he did not share the Newsom-Alioto vision and so he dismantled the program and dispensed with the buildings that were earmarked to house the homeless.
What’s both sad and ironic, is that the homeless are still homeless but many companies that are occupying the buildings that were earmarked to house the homeless, have reduced or area planning to eliminate their office-use in this new age of remote work. Seems no one has won.
The effects of Covid-19, with layoffs, remote work, the desire for more open-space, thousands of permanently closed businesses, and a sobering prediction that we will have to endure at least 16–18 more months of shelter-in-place, has had a severe impact on San Francisco real estate.
While some see this as negative impact, what’s it’s looking like to me is a much needed market correction. The city will recover — and come out on the other end even stronger and more beautiful than before. In the mean time, here will be some great buying opportunities in San Francisco.
San Francisco City History
Since San Francisco became part of the United States, (it was conquered by the US in 1846), it has been a classic Tale of Two Cities. San Francisco has certainly had to reinvent itself multiple times after man made problems and natural disasters.
San Francisco has always been successful at rebuilding itself because people have a heartfelt love for the city. Let’s face it, San Francisco is arguably one of the most beautiful cities in the United States.
If you look on a map, you’ll notice that San Francisco is positioned on a peninsula. It’s a small city — only 7 x 7 miles (49 square miles) and it is surrounded by water on 3 sides with sweeping views, landmark bridges, towers, Alcatraz island and quaint victorian homes, the kind you would find in miniature under Christmas trees around the world.
The weather in San Francisco can only be described as autumn sweater weather for 10 months out of the year. There is a short rainy season, a very short summer arrives sometime in September or October — but is pretty much gone by November. It has been known to snow in San Francisco every 50 years. I think the last time is snowed was sometime in the 80's.
When everyone else is having summer, San Francisco has fog, lots of fog, which makes it cold. In fact summers can be so cold, that it caused Mark Twain to coin the famous statement:
“The coldest winter I ever spent was summer in San Francisco.”
Wondering why San Francisco has cold summer fog? Well, it’s a fairly simple weather process; the hotter it is in the central valley (where all the crops are grown), the more moisture is drawn from the Pacific. Heat draws moisture and this moisture is brought over land in the form of Fog, which can be found up and down the coast sometimes as far south as Malibu and far north of San Francisco.
The Refrigerator Effect
The fog is a natural phenomenon, also referred to as “the refrigerator effect” and is one of the reasons why giant redwood groves flourish in Northern California. They love the cool fog. Seems the bears do too.
Long before the US conquered the city, San Francisco and Bay Area was home to the Ohlone Indian Tribes, with a history that dates back to 3000BC.
The Ohlone successfully existed for some 5,000 years but the Spanish missionaries arrived in the mid 1700’s to “save” the indigenous tribes, whose population promptly decreased from 300,000 to 250,000 between the years of 1760–1833.
It’s an entirely different and far more brutal story as to what happened after the city was conquered. No easy way to say it: The state government massacred the Ohlone. Today’s count is approximately 500.
America needs to recognize the brutal genocide and great human sacrifice that took place in order for us to exist on this land today and, “while no one can go back and change the past, we can start today, to create a new future.”
We owe all of the American Indian Tribes a great debt and in San Francisco (and the Bay Area) we owe the Ohlone Indian Tribe. The very streets we walk on and houses we live in are on land that supported the Ohlone people for thousands of years — long before the missionaries or the U.S.A. existed.
In 1848 the second wave of invaders arrived: California Gold Prospectors. The city’s population once again exploded from roughly a thousand people — to twenty-five thousand. Overnight, businesses emerged, houses were built, food arrived at the docs, shipping flourished and bars opened. It was an exciting time. A time full of the promise of overnight riches.
Abandoned Ships.
As a result of the gold rush, the San Francisco harbor became traffic-jammed with abandoned ships. Apparently, the promise of Gold was a better bet than a low-paying sailor job and so the crews abandoned their ships.
The city responded by demolishing the ships and selling the scraps.
If you look at the past 20 years you could draw some similarities to the tech Gold Rush— only now the gold is in the form of vesting stock shares in tech companies and the miners of today are engineers and employees of the tech companies. Same rush, different gold.
The Gold Rush days in San Francisco can only be described as out-of-hand. It was a lawless city filled with all sorts of debauchery, adultery, fires and murder.
A Classical Piano Play Boy
According to former MIT Music Professor, Marek Zebroski, it was during this time that the famous American musician, Louis Moreau Gottschalk, was rumored to have been run-out of San Francisco by torchlight & pitchfork.
Allegedly, an angry mob of fathers (and possibly some mothers) whose daughters were, uh-hum, deflowered by the sexy classical musician (funny how the modern day rock stars think they invented the bad-boy musician behavior).
Luckily for Gottschalk there was a ship leaving port for Brazil, by which Gottschalk made his narrow escape.
Reputed (or gifted) for being able to reinvent himself, Gottschalk promptly hooked-up with the royal princess of Brazil and convinced her to sponsor the largest outdoor piano concert in the world.
I’m not sure if there has ever been a larger outdoor grand piano concert since then or if he ever returned to San Francisco but it’s a fair bet that some of his decedents are still living in the Bay area today.
More Progress and Events
-There were 6 major fires during the Gold Rush years between 1849 and 1851. But San Francisco just kept rebuilding and building new things.
-The Construction of the Central Pacific Railroad brought thousands of Chinese laborers to San Francisco — and in the process — San Francisco’s famous Chinatown was born. Since that time, San Francisco has been a center of Chinese culture and immigration.
-Not long after the Gold Rush ended, modern San Francisco was struck with its greatest tragedy: the Earthquake of 1906, which then sparked the great fire that killed 3000 people in 4 days. The city survived and rebuilt.
-Twelve years after earthquake and fire, the Spanish Flu hit the city hard but again, she recovered. By then a growing Marine and Shipping business grew San Francisco’s economy, along with her skyline.
-Transportation systems were established shortly thereafter, ports were built and the Airport was constructed in 1927.
-Less than ten years later the Bay Bridge opened.
-In 1937, the famous Golden Gate Bridge opened.
-WWII brought another wave of population growth with the influx of people who came to work in the city’s war industry factories, which caused a major housing shortage. The City was not prepared. Sound familiar? I won’t get too far into the details but a great deal of Federally backed temporary housing was built to meet the needs. I mention this because Federal dollars are what is often needed to solve these types of gargantuan problems. Also at that time, there were a lot of housing disagreements between San Francisco and the other Bay area cities and counties.
San Francisco really is a Groundhog Day story… because if you know anything about Bay Area politics today, the WWII housing arguments are similar to the ones that are still taking place across the Bay area.
San Francisco seems to get stuck holding the ball when tech companies decide to expand. But let’s face it, if you’re a young tech worker, sleepy Palo Alto isn’t exactly the place to live for nightlife. San Francisco is much more exciting.
When the sixties arrived, it brought the Haight-Ashbury, hippies, Janis Joplin, pot smoking, LSD — and the summer of love. All of it further cemented San Francisco’s Bohemian reputation.
The Building of a Landmark
We can’t talk about San Francisco landmarks without recognizing the Transamerica Pyramid. Much like the Salesforce Tower today, at the time of its unveiling in 1968, the Transamerica Pyramid was highly controversial.
The then famous mayor, Joseph Alioto, came under strong fire for helping to orchestrate its construction. The public thought the plan was ugly. They were wrong. The Transamerica Pyramid was opened in 1972 and it is as iconic today as the Golden Gate Bridge.
By the mid 1970’s The Castro Neighborhood had emerged as the west coast’s ground-zero for the LGBTQ civil rights movement. One of the leaders of the movement was Harvey Milk, who became a city supervisor who was shot in a hate crime filled rage by another city supervisor in 1978. The event further raised the visibility of the movement and establishing San Francisco as a city also known for its activism.
Sadly, whatever good came from the tragic murder of Harvey Milk was short-lived as the Castro Neighborhood became devastated under the cloud of the AIDS epidemic. The city lost an untold number of people in the LGBTQ community.
The city rallied around The Castro Community and as time passed, it slowly healed.
Also during the Reagan era (the 80's), the government mental health facilities were closed around the country. Many of these facilities were in Florida, who gave the former residents one-way bus tickets to San Francisco (where all the screw-balls lived). They also allegedly gave them some lunch money for the journey.
As the lost disoriented souls arrived at the proverbial city gates, officials did not turn them away or return them in kind to where they came from, but instead opened a tent city in Golden Gate Park and created programs in an attempt to rehabilitate them. Is this liberal policy? No, it is our solemn responsibility to take care of our fellow human beings.
In October of 1989, the city was once again devastated by a horrible Earthquake. The city once again came together and rebuilt.
The tech boom of 90’s brought with it another rapid venture capital-fueled San Francisco population explosion.
The dot com bubble burst in 2001 and many of the surviving companies attempted to shift development offshore, which ultimately failed. If there was a respite in housing prices and availability, was short-lived as tech workers returned.
The next wave of venture-fueled companies began emerging in the early 2000's. Facebook moved to Silicon Valley in 2004 and a few years later a tremendous influx of “app companies” emerged on the heels of the release of the iPhone in 2007. RIP Steve Jobs.
Ultimately, the mass influx of well-paid tech workers once again created a housing shortage. It is important to note that some workers, although well-paid, still couldn’t afford an apartment, so they lived out of old moving vans they purchase and parked along boulevards in Silicon Valley. Don’t even ask about showering and bathroom use.
The more unaffordable San Francisco became, the more its Victorian charm diminished, artistic flair became lost along with the bohemian zeitgeist and affordable housing.
San Francisco Today
Fast forward to today, we are in another contraction / down-turn cycle. For the third time in her history, a pandemic has ravaged the city.
Following the Spanish Flu and AIDS, Covid-19 has caused an unprecedented mass exodus from the city.
All this and here in 2020, we are experiencing Climate Change, (which is here to stay). The best we can hope for, is to quell its effects but even that window is closing rapidly, as the city is oxygen-choked due to the massive number of fires burning throughout the Western States. The image to the left was taken from my home office at 12:30pm.
The current state of San Francisco can’t all be blamed on Covid-19. The city’s housing shortage, exorbitant rents, income inequality, empty storefronts, closed restaurants, massive homeless population, package theft and normalized car break-ins, all existed before Covid-19.
Prior to Covid-19, many younger people didn’t see themselves permanently living in San Francisco. Covid-19 only hastened the economic realities that the city is facing.
Here’s a look at the current Housing Market Stats:
The takeaway from this chart is that there is a tremendous amount of inventory on the market in every category: Single Family Homes, Condominiums, Multi-Family and Rentals.
There are a fair number of sales but no where near what it used to be. Prices are holding steady, particularly with Single Family Homes. I believe we will see a drop in Condominium prices.
Given that there are so many rentals on the market, it remains to be seen whether or not multi-units will hold their value outside of certain neighborhoods.
The Future of San Francisco
Some economists believe that home prices will crash. I don’t agree.
I believe that the two economy system has emerged due to Covid-19 and that it is here to stay. It is a problem that we will need to solve, as we work toward creating a system that works for everyone.
“Until we are all free, we are none of us free.” Emma Lazarus
I believe that what will come out of this if the opportunities are taken to make change. We have the opportunity to restart the homeowner escalator system, where people start with an affordable rental and then eventually move on to home ownership.
Rentals have to be affordable enough to save money for a purchase and remote work can offer us this opportunity as less people will flock to cities and be unwilling to pay exorbitant rents.
San Francisco will reinvent itself. If we find that the political climate is ripe for a green new deal, we will see another influx of jobs in the green energy and materials sector, which will offer new opportunities in a market segment that is a cross between tech and manufacturing (much like Tesla). One thing is clear, the future is not big oil or the internal combustion engine.
STAY POSITIVE & KEEP HOPE ALIVE
Together we will get through this time, together we will co-create a better world, a better community and a better economy that does not leave people behind by design.
If you would like to hear my Podcast of this article, please visit Never Too Late To The Game’s Monday Morning Real Estate Update for September 14, 2020.
You can also find me on Spotify, Google or Apple Podcasts. Sometimes Google takes an extra day to propagate.
