With Soaring Rents and a Vanishing Middle Class, San Francisco Becomes a City for the Rich

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In San Francisco’s November election – in which Mayor Ed Lee was re-elected – housing was the number one issue. Two major progressive ballot measures related to housing were defeated: One would have regulated Airbnb by limiting the number of short-term vacation rentals, while the other would have put a moratorium on development in the city’s Mission District.

Airbnb spent over $8 million to defeat the proposition that would have regulated it. Even though the development moratorium lost, progressives promise to continue fighting against “market-rate” housing development in the Mission and other neighborhoods, the issue being that few people in San Francisco can afford “market-rate” housing, except those who are rich.

In addition to tenants themselves, nonprofit organizations that assist tenants are also feeling the pain of gentrification. Two San Francisco nonprofits that help tenants avoid eviction – Eviction Defense Collaborative and Tenants Together – are, ironically, getting kicked out of their offices to make room for WeWork, an office-space provider company.

What’s happening in San Francisco is not just a story about one city; it’s a story of what is happening to urban areas around the globe. As the days go by, San Francisco is solidifying itself as a city for the wealthy, putting it on par with wealth havens like New York City, London and Singapore, where long-time residents have been pushed out and replaced by corporations and the super-rich.

Super High Rents

The median rent for a one-bedroom apartment in San Francisco is $3,500 per month, according to real estate website Zumper’s latest monthly report for November. In October, median rent for a one-bedroom was $3,670 per month, making this the first rent decrease to occur in a while – a decrease of 4.6 percent. However, San Francisco monthly rents remain astronomically high compared to other cities like Chicago and Washington, DC, which are $1,980 and $2,160, respectively.

In September, the story of expensive housing in San Francisco reached another “milestone” – median rent for a two-bedroom apartment hit $5,000 per month. But now median rent for a two-bedroom is $4,830, dropping $170. This could mean that rent in San Francisco is reaching a plateau – a plateau that remains extraordinarily high. On the extreme end, the city’s most expensive rental on the real estate website Zillow is a three-bedroom penthouse in San Francisco’s Four Seasons Hotel, located in the South of Market neighborhood, which is renting for $29,950 per month. San Francisco remains the most expensive city for housing in the United States.

As the city’s rent prices soar, San Francisco’s middle class is disappearing. On top of that, the city has the second-highest income inequality among the country’s 50 biggest cities (Atlanta being number one). According to the San Francisco Chronicle, based on newly released census data, “Between 2009 and 2014, the number of San Francisco households earning $75,000 to $100,000 – a range that includes the median income of $78,400 – dropped by 1.2 percentage points, from 11.8 percent of the city to 10.6 percent. The number of households making $50,000 to $75,000 fell nearly 2 percentage points, from 15 to 13.1 percent of the population.”

Meanwhile, the number of rich people in San Francisco is increasing. According to the Chronicle, “the number of San Francisco households pulling in $200,000 or more increased sharply – by 3.7 percentage points.”

In some areas, the dip is more stark. For example, in 2009, in one census tract on the southernmost edge of the Mission District, 18.5 percent of households earned $75,000 to $100,000. That percentage dropped to 16.1 percent in 2014. Workers earning between $50,000 and $75,000 “saw the steepest drop-off, falling from 21.6 percent to 7.4 percent during the same time period,” according to the Chronicle. In 2009, 11.5 percent of San Francisco residents were below the poverty line, but five years later that number is 13.3 percent.

On the other hand, in the same time period, “the number of households in that micro-neighborhood earning $200,000 or more jumped from less than 1 percent to 16.1 percent.” The Chronicle also mentioned, “Since 2010, the proportion of households earning $200,000 or more increased in three out of every four San Francisco census tracts.”

To varying degrees, the trends playing out in San Francisco are happening in cities across the country. Cynthia Kroll, chief economist at the Association of Bay Area Governments, told the Chronicle, “It’s a trend that’s happening nationwide. There has been more growth at the top and bottom than in the middle, and San Francisco is an exaggeration of that.”

In fact, the middle class is now a minority in the United States. There are now fewer adults in the middle-income bracket than there are in the lower- and upper-income brackets combined. According to a recent Pew Research Center study, there are now 120.8 million adults in middle-income households while there are 121.3 million lower- and upper-income households. This is compared to 80 million adults who were in middle-income households and 51.6 million in both lower- and upper-income households combined in 1971.

From 1971 to 2015, much of the country’s aggregate household income has gone toward the richest few. In 2014, 49 percent of US aggregate income went to upper-income households, according to the Pew study, an increase of 29 percent from 1970. Meanwhile, aggregate income going to middle-income households was 43 percent in 2014, compared with 62 percent in 1970.

Displacing Residents

Private landlords are not the only ones displacing people from housing; sometimes, the city government itself is responsible. In San Francisco, this is occurring at Midtown Park Apartments in the Western Addition neighborhood. What makes Midtown noteworthy in the story of San Francisco’s gentrification is that the diverse and tight-knit community represents the kind of culture and history the city is losing as it gentrifies into a playground for the very rich.

Midtown was established in 1968 for people who lost their homes during the “urban renewal” that took place in San Francisco’s Fillmore District, which displaced many Black residents. It was earmarked as below-market-rate housing for low- to moderate-income people. While the city owns Midtown’s property, Midtown is not public housing, and the residents were promised eventual co-ownership of the complex. Most of Midtown’s residents are senior citizens and moderate-income people, many of whom are African-American – a stark contrast to the increasingly affluent demographic that is rising in San Francisco.

Throughout the decades of Midtown’s existence, even though the City of San Francisco owned it, the City acted as an absentee landlord, even as the apartment complex’s conditions deteriorated. The City maintained little to no oversight of its own property. It “owned the land and structures,” but the actual management of that property was left to “amateur volunteers and a succession of property management companies,” according to SF Weekly, rather than people with expertise in managing property. As a result, “the system couldn’t have been better executed to obscure accountability and ensure the complex’s long-term needs went unaddressed.”

In 2014, the housing rights group Save Midtown Park Apartments wrote in a San Francisco Bay View newspaper op-ed, “The City and County of San Francisco, like many neglectful landlords, failed to make basic maintenance upgrades to Midtown for decades and now proposes to level at least two and up to all six Midtown buildings, build new residences and impose dramatic rent increases through new restrictive lease agreements in order to repay the City’s investors.”

The story of Midtown’s fraught relationship with the City isn’t new. In 1995, Midtown residents began meeting the City to explore the possibility of ownership. Over a decade later, in 2007, Midtown residents paid off the city’s mortgage on land and buildings they did not own. A 2007 board of supervisors resolution reinforced a long-term ownership plan for Midtown to replace City ownership. One of those “alternative ownership structures” included an “affordable co-operative ownership.” The resolution also promised, “No tenant will be evicted because his or her income is too high or too low.”

However, in 2013, the City of San Francisco terminated its lease to Midtown and began a rent modification program. As a result, many residents face a rent increase ranging from 30 percent to 300 percent – increases that many Midtown residents cannot afford to pay. For example, resident Phyllis Bowie told ABC 7 News in San Francisco, “I pay $956 and it’s going up to $3,575.”

The Mayor’s Office of Housing, the municipal department that oversees Midtown, told Truthout that the City needs to raise Midtown’s rents in order to pay for necessary repairs and improvements on the complex, estimated at $38 million, along with $55 million to construct two new buildings – totaling $93 million (it claims outside resources could provide as much as $60 million toward that goal). According to the San Francisco Examiner, the City plans “to renovate four residential buildings containing 96 below-market-rate units that front Scott, O’Farrell and Divisadero streets. Two buildings containing 44 below-market-rate units that front Geary Boulevard would be demolished to make way for residential buildings containing up to 114 more such units.”

The City also accuses tenants of not paying their fair share, saying that their rents were kept too low, for too long – an odd argument to make at a complex the City specifically earmarked for people who earn low or moderate incomes. While the City also says that a co-op is not feasible, it promises that no one will be displaced, the rent modification program will be phased in over five years, and rents will remain “affordable.” However, in a city where median rent for a one-bedroom apartment is well over $3,000 per month, the term “affordable” seems meaningless.

Interestingly enough, the expenditures leveled at Midtown are lower than what the City spends elsewhere. For example, the City of San Francisco pays $415.1 million per year in salaries and benefits to its police officers – a police department fraught with institutional racism and KKK-esque officers, which routinely inflicts violence on the city’s Black and Latino population. San Francisco Police Department Chief Greg Suhr’s salary is over $300,000.

When Midtown residents marched to a rent board meeting last September, many argued that the city’s lackluster management of Midtown was responsible for the current problems. They felt it was presumptuous of the city to neglect Midtown for so many years, and then, all of a sudden, terminate the lease and demand a massive rent increase.

While it is understandable that the City needs funds to make necessary repairs on an old complex, the residents have a compelling point. The City’s negligence over property it owned and the system it established from the beginning set Midtown up for failure. Rather than take responsibility, the City is pointing its finger at the residents.

The fact that Midtown residents paid off their mortgage nearly a decade ago seems to strengthen their argument for ownership over the apartment complex. When a homeowner pays off their home’s mortgage, the home belongs to them rather than the bank that held the mortgage.

Sienna Dunn, a transportation worker in her mid-30s with a 2-year-old daughter, lived in Midtown for 13 years, and both her grandmothers lived in the apartment complex her whole life. Dunn was born and raised in San Francisco. She originally paid $900 per month for her two-bedroom apartment, but that price just increased to $3,000. Dunn’s grandmother, who served on the nonprofit board that managed Midtown, died in 2014 after years of fighting the City on behalf of Midtown’s tenants. “The stress from Midtown caused my grandmother to have two strokes,” Dunn told Truthout. Her grandmother stepped down from the board after her first stroke, but the City kept harassing her and other tenants, including by threatening eviction.

Like many residents, Dunn decried the City’s negligence and poor conditions in her unit. “My unit hasn’t had new carpet. There’s mold everywhere. I’ve had a situation where my bathroom was leaking in my kitchen and they wouldn’t replace anything. All they did was replace the leak in the bathroom. That’s it,” she said. The City rebuffed her requests for a new carpet and to change the linoleum.

Meanwhile, Dunn said, the City’s rent modification program “is just a rent increase. That’s basically what it boils down to. It only goes up; it never goes down.”

Moreover, Truthout also obtained the Mayor’s Office of Housing’s emails – from Save Midtown through the Sunshine Act – that shows many city officials celebrating the termination of Midtown’s lease by making fun of the tenants, “going out for drinks” and “eating a slice of Delessio’s German chocolate cake.” When asked about the emails, the Mayor’s Office of Housing did not respond. Like the rest of San Francisco, Midtown’s area is prime real estate. So the City appears very eager to make Midtown attractive for more well-to-do residents.

Midtown residents got lawyers from AIDS Legal Referral Panel and Brightline Defense Project on their side to fight the rent increases. Their lawyers argue that the City’s termination of the lease triggers rent control protection. As of now, the fate of Midtown remains up in the air, but tenants continue to fight. However, like many San Francisco residents, they are hanging on by a thread.

Uber-Rich Taking Over Cities

Of course, San Francisco is not alone: The phenomenon of cities becoming havens for only the super-rich is a global problem. As Columbia University sociology professor Saskia Sassen wrote in the Guardian, “From mid-2013 to mid-2014, corporate buying of existing properties exceeded $600 billion (£395 billion) in the top 100 recipient cities, and $1 trillion a year later – and this figure includes only major acquisitions (e.g. a minimum of $5 million in the case of New York City).”

According to the Sotheby’s study, “The Global Residential Real Estate Report 2015,” San Francisco ranks fifth in the world’s top 10 cities for the world’s uber-rich – or ultra-high-net-worth (UHNW) – population. “New York, London, Hong Kong, Singapore and Paris are the most important international hubs for UHNW residential real estate,” the report said. Meanwhile, “Some cities like Los Angeles, San Francisco, Washington D.C. and Dallas show how significant industrial clusters can be in driving residential real estate trends.”

The report also says that increasing property prices are “boosting investor confidence.” It adds, “The strong performance of the Bay Area’s economy led to affluent individuals profiting from appreciation in stocks and an influx of foreign buyers, increasing the demand for luxury homes in San Francisco.” For young, uber-rich individuals, “the appeal of the San Francisco lifestyle, which differs significantly from that found in Los Angeles, is proving to be increasingly attractive.”

San Francisco’s top attractions are its technology industry – which the study claims will provide the Bay Area with “rapid and robust economic growth” – and “low inventory and high demand” for housing, which “will continue to push property prices up.”

As The New York Times reported in February, several condos in Manhattan’s Time Warner Center building are owned by the uber-rich, including American doctors, lawyers, celebrities, chief executives, “technology entrepreneurs and Wall Street traders,” along with “a growing proportion of wealthy foreigners.” At least 16 foreign owners were subject to “government inquiries around the world, either personally or as heads of companies. The cases range from housing and environmental violations to financial fraud. Four owners have been arrested, and another four have been the subject of fines or penalties for illegal activities.” Some of the foreign owners included “government officials and close associates of officials from Russia, Colombia, Malaysia, China, Kazakhstan and Mexico.” They were able to purchase these residences through untraceable money and shell companies in order to keep their assets anonymous.

And so we see how gentrification in San Francisco exemplifies the profound economic shifts that are occurring in urban areas: The wealthiest few continue to get richer and big cities cater to them. Meanwhile, the middle class disappears and the ranks of the poor and working poor continue to swell. Just as housing impacted San Francisco’s latest election, these economic shifts will undoubtedly impact the upcoming national elections. But more importantly, they will contribute to poverty and homelessness in cities around the country and the world.