There’s a new menace threatening cities today, according to frequent and continuous laments seen around the web. Like an invading army, they’ll march into beautiful cities, gentrify them until no one but them can afford to live there anymore, and strip them of their culture and individuality with an explosion of eerily similar apartment and condo complexes. San Francisco is lost to them. They’ve almost conquered Seattle. Los Angeles is losing against their onslaught, as are Brooklyn and D.C. Now they’ve set their evil sights on Columbus and Las Vegas as their empire expands across the nation.
They are the new boyars of the American economy, clad in jeans, Converse shoes, and hoodies, working in luxurious offices as the rest of the nation is struggling to keep their jobs. Their ranks have produced more billionaires, millionaires, and upper middle-class professionals than any other group in the history of the world, according to a common axiom. They drive luxury cars, drink expensive booze, patronize trendy bars and clubs built in giddy expectation of their arrival, and snap up homes, driving real estate through the roof. They are the techies, and they are very bad news.
While blaming techies for the explosion of growth and prices in urban hubs across the nation is the new black, actually being a techie isn’t all it’s often cracked up to be. Now, now, don’t get me wrong, in no way should you start pitying coders, designers, and computer experts. We work long hours partly because we actually tend to like what we do and when we’re on a roll, it’s a lot harder to stop, punch out, and get back to our code next day when that muse has left us. We can indirectly make money out of math and our code actually does have the potential to massively improve the world.
But if you think that we’re living large as other urbanites suffer the sting of soaring real estate prices while millions pour into our bank accounts every two years on the dot when our options vest, you’ve been watching way too much Silicon Valley. Its nerd talk may be real and many of its scenes play out in just about every tech workplace, but the culture it tackles is a really small sliver of the tech community as a whole. Most techies don’t work for startups, but for established companies that often don’t make apps, games, or bots for social media. They usually create and maintain code for midsize to large banks, insurance companies, hospitals, and local governments.
Forget the jeans and hoodies, office gyms, gourmet cafeterias, game rooms, and massages after a catered lunch. Instead, think of Jake from State Farm and fabric-lined cubicles in a gray tone so utterly demoralizing, it’s as if its manufacturers hired a group of experts and told them to find a color able to make otherwise happy, normal humans being slowly lose the will to live. It’s a little different in tech hubs where more workplaces are trying to meet the standards set by Silicon Valley powerhouses, and keep employees working a bit more by providing a few amenities, as well as making them comfortable with a more relaxed dress code. But these are exceptions, not the rule, and those who own living space don’t seem to know that, or care about it.
Seeing influxes of steadily employed, in-demand workers, landlords quickly start raising rents. Needing a place to live, the techies pay what’s requested because they make enough, or start buying homes to avoid rent increases. A spike in qualified buyers leads homeowners to raise their prices and because there’s only so much housing in any neighborhood, and ultimately, any city, the techies once again have to pay up. They’re not lavishly spending because they no longer know what things are worth, they’re up against a limited and suddenly valuable supply. They’re just making do, keeping their heads above water because their salaries give them the financial cushion their neighbors might lack, which generates a lot of friction.
Pushed out by rising costs, their neighbors quickly blame the newcomers as their presence led to a surge in demand, and the industry that employs the newcomers, paying them enough to keep up with rent and real estate price increases. New apartment complexes quickly built to target techies and new stores, bars, restaurants, and gyms vying for their disposable income allow landlords and homeowners to raise prices even higher. Cities allocate more and more money to renovate and develop neighborhoods popular with the tech menace, making the differences between the end products of all these development efforts and neglected districts comically stark.
Even worse is when cities actively recruit tech companies to come and give their economies a boost. Their current population knows full well why the torrent of techies may just answer the call and are wary of gentrification and rising prices as the employees of a new industry snap up almost every home for sale and every apartment for rent. What the cities are telling the people who already live there when they try to be the new Silicon Valley is that cost of living is about to skyrocket, residents are about to get displaced by the coming tech menace, but the city doesn’t care because it’s sure that the new industry will cure all its ills with a tsunami of startup money.
Techies often choose to live there, not just for the sake of living in a big city, but because that’s where the jobs are. Why not just telecommute to live in a more affordable town? Well, not all employers allow telecommuting, and a surprising number of tech bosses are still stuck with the outdated mentality that physical presence in the office equals work being done. And if they can just work from home, what happens if they lose their jobs in an acquisition, or if their company goes under? Living farther away from an urban hub will mean fewer job options thanks to smaller economies. So they tend to live in expensive cities and will often choose to buy property or rent apartments in areas with deep cultural roots because they’re at least affordable.
But as cheap cities become expensive and pricey cities become even pricier, even the techies often struggle to keep up. How could that be? Aren’t those who’ve been in the industry for a while often in the top 10% of earners? In the big picture, the top 10% of all earners make just a bit shy of 46% of all available income, which is pretty lopsided, but the distribution of this cash is even more so, as the top 1% vacuums up $2 out of every $5. At the end of the day, if the typical house goes for $600,000, it’s going to be pretty hard to cough up a $60,000 down payment to then pay almost $3,500 to more than $4,000 per month in mortgage, taxes, PMI, and insurance.
To qualify for this kind of loan, you’ll need to be just a few hundred dollars a year away from the top 5% of earners by household income. Most techies by themselves don’t make that much, but our hypothetical house is actually not much below the median price for a home in many of the major tech markets. The only people truly benefiting from gentrification are current land owners happy to charge ever higher rents and sell for ever higher prices. Depending on zoning and development laws, they can even artificially restrict supply as they have in San Francisco for decades. Believe it or not, the techies and the people pushed out of the gentrified districts when they moved in are in very similar situations, just at different price points.
Neither the techies nor the people being gentrified out of their homes want a monocultural, sterile city dominated by chain restaurants, big box stores, and people all working in the same few industries. Where they live and the choices they make when moving seem to strongly indicate their preference for diversity and variety. Unfortunately, techies don’t pay enough attention to the people in their neighborhoods leaving due to the cost of living rising out of control, both because it’s going to mutate the area they started to call home into something they probably wanted to escape, and because a fleeing population is a huge red flag for them as well.
Ultimately what can cities do to attract high income techies and keep their neighborhoods from becoming unaffordable to the people who already live there and new residents? It’s hard to imagine Columbus wants to end up in any way like Palo Alto, where the typical family home goes for $2.5 million, and even techies who are California dreaming about joining the elite ranks of startup land bristle at the thought of moving there. But the good news is once the tech crowd and the current residents realize they’re very much in the same boat, there are some steps they can take. Even though they won’t be perfect for everyone involved, they can save neighborhoods from being overdeveloped on one extreme and forgotten on the other.
First and foremost, instead of trying to attract startups, nearly half of which will struggle to make it for more than two years, cities need to understand that in today’s economy, every industry needs code and technology. Rather than focusing on being the new hub for mobile apps or some service that’s solving a first world problem, they need to attract tech savvy companies in general. Think logistics, robotics, green energy, 3D printing, and consulting for next generation factories, government agencies, financial services, and construction. Instead of running lean, they will need employees who know more than just coding, software design, and marketing. This provides both the techies they crave, and job opportunities for current residents.
Likewise, it makes a bust less likely because cities where a single industry is the main source of income for everyone, from the typical worker, to all the owners of stores where those earners shop, will be devastated when there’s a downturn in this industry and people get laid off en masse. This is pretty much the same phenomenon that devastated Detroit and the rural Midwest with dire social and political consequences. Repeating that with the highly volatile world of startups doesn’t seem wise. Modernizing what you already have, then using it as a cushion for hosting new opportunities for VCs and a pool of young techies eager to start their own companies will make the new local economy a lot more resilient to market fluctuations.
Secondly, cities can’t forget neighborhoods when it comes to development, making sure a certain percentage of funds is set aside to improve existing districts in need of development when a new budget is approved. Playing favorites on such a hyperlocal level is trouble at election time because it’s dividing and polarizing the voters. If you’re on a city council or the mayor, you want everyone in your city to be on the same team, so don’t ruin it by holding up one group of voters as your salvation while ignoring others. At the end of the day, they’re all neighbors in some sense, and divisiveness from a badly thought out campaign speech will ferment and hit home, hard.
Finally, cities have to be taken to task when it comes to policies that benefit the land and home owners so disproportionately, they win as the city loses because no one can afford to live there anymore. Tax giveaways that allow them to profit simply by putting their name of a piece of dirt, lax rules on foreign purchases that empty out neighborhoods for wealthy investors who just want to park their money in a big city, they all need to be tackled. It’s actually in the city’s best interests to do so because the lack of living space is going to drive the very people who can contribute most to its economy in the long term out towards greener pastures where the story will just repeat itself while the city is stuck with vacant lots and houses.
Sadly, none of this means that neighborhoods won’t change, or gentrification will become a thing of the past. No one is entitled to live where they live in perpetuity, and we certainly do want cities to develop new projects, lure in a new industry or two, and boost their economies. But we can do this in a far more organized and sane way rather than build as fast as we can, sell for as much to whomever we can, and fuel growth for the sake of growth without a long-term strategy of where we ultimately want this growth to lead us. We want diversified economies and workers who can cope with busts in certain industries by getting jobs in another, all based in the same metros. So when luring in The Next Big Thing, let’s make sure we can all benefit from it, not single out the people working on it as both saviors and scapegoats.
