No major American city has failed at the same level as Detroit, whose population dropped from 1.85 million people in 1950 to about 630,000 today. Move over Detroit, here comes San Francisco, which lost 6.3 percent of its population between 2019 and 2021, a rate of decline larger than any two year-period in Detroit’s history and unprecedented among any major US city.
Detroit’s fall was primarily driven by the relocation of the US auto industry to southern, right-to-work states, where auto producers, including foreign firms who build autos here, have avoided the union conflict that was endemic in Detroit. San Francisco’s decline is driven by absurdly bad local economic policies. How bad? As some city blocks have been taken over by drug gangs selling fentanyl in open-air superstores (think of an opioid version of Costco, without the membership card), city supervisors have spent their time talking about defunding police, abolishing rent, abolishing prisons, and demanding that if Whole Foods is to be allowed to develop a grocery store in a vacant building in the city, it must include affordable housing.
Some blame San Francisco’s high cost of living for the exodus. San Francisco housing costs have contributed to this loss, but many of those leaving the city are those with very high incomes who can afford to live in San Francisco. Instead, they are choosing to move to locations, many of which are also expensive, that have much more sensible city governance.
They are moving to destinations that do not have San Francisco’s drug and crime issues, its poorly performing public schools, its homelessness, its extremely high cost of doing business, and other issues that people have tolerated for so long, only because San Francisco was once one of the world’s great cities. As someone who loved San Francisco, it pains me to say it no longer is. And I suspect that those who departed San Francisco, whose exits left the city with 60,000 fewer taxpayers, feel the same way.
Between 2019 and 2021, San Francisco lost nearly $7 billion of household income, even after accounting for those who moved into the city. Taxpayers who filed 2019 tax returns from San Francisco and 2021 returns from a new location reported an average annual adjusted gross income (AGI) to the IRS of nearly $196,000. But because the income distribution is such that the median income is greater than its simple arithmetic average, the median income of taxpayers who left San Francisco would probably have been around $250,000. And as those dollars leave, so does the economic activity that those individuals directly and indirectly create. This is a particularly important issue for tech workers, as some of those workers will go on to start their own companies. Sadly for San Francisco, those startups will be created somewhere else.
Where have all the wealthy gone? Teton County, Wyoming, home to Jackson Hole and other famous ski resorts, is the destination of the wealthiest San Francisco ex-pats, representing an average annual household income of nearly $600,000 and a total income loss for San Francisco of $37 million over the two-year period. These people did not leave San Francisco because of high housing prices. The median home price in Jackson Hole, one of the few locations in the United States where home prices are still rising, is $1.55 million per Zillow, higher than San Francisco’s median home price, which was $1.3 million in December and continues to fall.
Washoe County, Nevada, site of Lake Tahoe, another ski resort, attracted 333 San Franciscans who have an average AGI of well over $300,000. Just behind these ski resorts in terms of income is Palm Beach, Florida (where there is no state income tax), which attracted San Franciscans with an average income of about $300,000.
The broader Bay Area also lost high-earning households. San Mateo and Santa Clara counties, home to Silicon Valley, lost over 2 percent of their tax filers. The San Francisco metro area lost a total of nearly $14 billion in household income between 2019-21. And those leaving San Francisco were wealthy enough that the city’s median income dropped by 4.6 percent over the 2019-21 period.
As San Franciscans have left, San Francisco’s downtown has suffered the most, as many tech workers and their employers have decided that they collectively are better off reducing or eliminating their office space footprint in the downtown area. The office vacancy rate in the city is 27 percent, up from just 4 percent in 2019.
One San Francisco tech entrepreneur took photos of the San Francisco’s downtown area on weekday mornings, times when the area historically has been crowded. Look at these photos and you will think that they were taken on a Sunday or a holiday, not during a normal workday. You see empty streets and empty sidewalks, which in turn lead to empty coffee shops, restaurants, bars, and other businesses whose revenue is primarily driven by downtown workers. As these businesses close, with plywood covering their windows, what little energy and vibrancy of San Francisco’s downturn declines further.
The city estimates that downtown foot traffic has declined about 64 percent compared to 2019. Empty office buildings could cost San Francisco $200 million per year in lost property taxes. And as tenants have sublet their office space, nearly 50 percent of that space will be up for renewal in about two years, raising the potential for even more losses.
What is San Francisco doing to address these issues? Mayor London Breed has suggested converting part of downtown’s tech and finance presence to biology-based industries. But the existing office space would likely need to be substantially renovated for such a different industry.
A San Francisco business group commissioned a 143-page plan to revitalize downtown. Some of what is recommended is predictable and has all the right buzzwords and phrases, including creating a “Pedestrian Paradise,” envisioning “Downtown as a Stage,” with public performances and events, and “Rediscover[ing] Public Open Spaces.” But none of this will ever become a reality without a more sensible Board of Supervisors and a crime, homelessness, and drug abuse do-over. Interestingly enough, the report is silent on these issues.
A search of the report for the words “homeless,” “homelessness,” “crime,” “drugs,” and “opioids” came up empty, with not one mention of any of these words in the 143-page report. The report does include the words “safety” and “cleanliness” several times. Perhaps these euphemisms are as far as a business group could wander into city politics without upsetting the precarious apple cart of the city’s Board of Supervisors, who were not involved in commissioning this study and who don’t seem to understand the gravity of the city’s current state. Supervisor Aaron Peskin remarked that it was important for the mayor and other city officials to get past trying to return downtown San Francisco to the economic powerhouse it had been in 2019, and he believed that the loss in economic activity wasn’t “profound.”
Detroit died a slow, insidious death, one that unfolded over 70 years. San Francisco is experiencing something much more striking, rapid, and prominent in the news media. Will San Francisco politics change in response to its residents’ leaving, which has created a $7 billion net income loss within the city?
I really would like to think that the answer to this question is “yes.” But on the other hand, the city is at the mercy of a Board of Supervisors that is largely responsible for what San Francisco has become. A board that ended up quashing the opportunity to have a new Whole Foods market, a market that neighborhood residents had hoped to attract. And a market where Whole Foods had agreed to build housing in order to receive approval.
That opportunity is now gone. And as of last year, nearly five years after Whole Foods was denied, the building at the site for the proposed market remained empty, in disrepair, and subject to frequent break-ins, most likely associated with drug use and prostitution. So, on second thought, the answer to the question posed above is “no.” At least not until San Franciscans decide to vote differently.