March 25 (Bloomberg) -- When J.M. Myers, a software engineer from Maryland, went west, he opted for San Francisco and a job at mobile-advertising startup TapSense -- and not Silicon Valley. He’s far from alone.
San Francisco is outpacing the traditional industry hub to the south in job creation, driving up living costs and igniting a backlash over a widening wealth gap. The city had 57 percent growth in technology jobs from 2010 to 2013; Santa Clara County, home to Apple Inc. and Google Inc., saw job increases of 14 percent, according to state figures.
“Landlords are noticing that and they drive their prices up,” says Myers, 24, who pays $1,350 a month for a one-room apartment and hangs out in watering holes like the ThirstyBear Brewing Co. in the tech-focused South of Market neighborhood.
San Francisco, the state’s fourth-largest city with a population of about 826,000, is gaining on Silicon Valley as young entrepreneurs opt for urban amenities and startups developing consumer-based technologies, such as social media and mobile apps, seek to be closer to clients, each other and their venture-capital funders.
In the city, “the ecosystem is all about exchanging ideas,” San Francisco Mayor Ed Lee, 61, said in an interview. “You just don’t feel innovative in suburban areas where there’s no one to talk to.”
This is the latest boom for a city that has ridden boom and bust cycles since it grew out of the Gold Rush of the mid-1800s. The latest tech surge is the second, following the dot-com era of the late 1990s.
Lee gave this wave a push, advocating a payroll-tax break for businesses based in the blighted Mid-Market area. It kept social-media company Twitter Inc. from leaving and encouraged companies such as Yammer Inc., a social network for businesses, to move their headquarters there.
The growth has propelled San Francisco to one of the fastest economic expansions in the U.S. The unemployment rate fell to 5.7 percent in 2013 from 9.6 percent in 2010, according to preliminary data from the Bureau of Labor Statistics.
The San Francisco metropolitan area’s real gross domestic product grew 7.4 percent in 2012 from 2011, according to U.S. Bureau of Economic Analysis data, more than double the state and national expansion that year.
The median price paid for a home in San Francisco was $945,000 in February, increasing 34.9 percent from $700,500 in a year, according to DataQuick, a San Diego-based real-estate data provider. Asking rents grew 19 percent to $2,152 per month at the end of 2013 from the end of 2009, according to Ryan Severino, a senior economist at Reis Inc., a New York-based property-research firm. San Francisco rents were the second-highest in the U.S., surpassed only by New York, he said.
As businesses moved, office rents jumped to $55.40 per square foot per year in the fourth quarter of 2013 from $30.50 per square foot per year in the first quarter of 2010, said Colin Yasukochi, director of research and analysis at brokerage CBRE Group Inc. in San Francisco.
The number of technology companies with offices in San Francisco grew 40 percent to 1,957 between the first quarter of 2010 and the second quarter of 2013, CBRE’s Yasukochi said. Among them are LinkedIn Corp., the Mountain View-based professional-networking firm that occupies five floors in a 38-story office tower in San Francisco’s Financial District. Pinterest Inc., a Web-based bulletin board, moved its headquarters from Palo Alto in Silicon Valley.
“We do think employment in general is a very positive thing,” said Ash Kumar, the 34-year-old chief executive officer and co-founder of TapSense. “Not too long back we had a recession where unemployment rates were really high. Now employment is great.”
The company, which has grown to 20 employees from four in two years, has clients that include property-listing websites Redfin Corp. and Trulia Inc., which is one block away from his South of Market office.
The city, located on the northern tip of a peninsula in the most-populous U.S. state, is just 7 miles (11 kilometers) long and 7 miles wide. It’s the most densely settled major U.S. city behind New York.
Silicon Valley was the prune capital of the world when Palo Alto-based Hewlett-Packard Co. was founded in 1939. Thus began its transformation to the epicenter of the technology industry. Engineers from International Business Machines Corp., based in Armonk, New York, invented the first disk drive in its San Jose laboratories in 1956, according to the Computer History Museum in Mountain View.
The throng of highly compensated tech workers in San Francisco is stirring resentment among long-time residents priced out of the rental and home-buying market. Software engineers at Google, Facebook Inc., Twitter and Apple earn an average of $110,000 to $120,000 a year, not including bonuses, according to job website Glassdoor Inc.
“We’re encouraging hundreds of new people to move to San Francisco who are dripping with money and we’re also encouraging an industry where millionaires are created overnight who are already in the city,” said Sara Shortt, executive director of the Housing Rights Committee of San Francisco, a non-profit tenants’ rights organization. “With a limited housing stock and limited land to build on, that means they have to push others out in order to live here.”
The debate over income inequality, echoing President Barack Obama’s national campaign to raise the minimum wage, has led to protests at commuter buses that ferry Google employees from the city to its Mountain View headquarters.
Among solutions Lee has offered include providing 30,000 new and refurbished homes by 2020, with at least one-third of those geared toward low- and moderate-income families.
One new tech job creates five jobs locally, said Enrico Moretti, an economics professor at the University of California, Berkeley. Waiters, carpenters, taxi drivers, architects, real-estate agents, nurses and teachers “have a job because of the growth in the wealth of the high-tech sector,” he said.
Instead of protesting high-tech jobs, “we should be celebrating job creation,” Moretti said. “Dozens of other cities would love to have the problem that we have.”
To be sure, while the pace of San Francisco’s tech-employment expansion exceeded that in Silicon Valley, the number of jobs added from 2010 to 2013 was higher in Santa Clara County than in the city, the state data show. Santa Clara County added 27,245 tech jobs from 2010 to 2013, exceeding San Francisco’s 21,672 in the same period. Industry employment totaled 219,546 in Silicon Valley against 59,683 in the city.
Interest is also stirring among investors in the startups that dot the city. Index Ventures, which opened a San Francisco office in 2011, chose to bypass the venture-capital hub along Sand Hill Road in Silicon Valley’s Menlo Park, said Mike Volpi, a partner.
“We’re in the business of getting entrepreneurs to choose us over our compatriots in our industry,” Volpi said. “We wanted to take a different, fresh approach as we understood the sentiment that was held by a lot of these entrepreneurs about San Francisco being the place.”
Since Twitter moved to Mid-Market in June 2012, the number of employees at the real-time messaging company has nearly doubled to 1,500 from 800, according to spokeswoman Karen Wickre. Dropbox Inc., a provider of online document storage and collaboration tools, went from 35 employees in 2011 to more than 500 people, according to Ashley Grabill, a spokeswoman for the company at The Hatch Agency, a communications firm.
Bret Taylor, 33, CEO of Quip Inc., said having his office in San Francisco has given him a hiring edge with employees who live in the city and don’t want to commute to Silicon Valley. His company, which offers a collaborative word processor that works on desktops and mobile devices, opened an office on Market Street last year with eight employees. It now has 15.
“It’s a more fun place to live, especially if you’re young and single,” said Taylor, who used to work as chief technology officer at Facebook and lives in Lafayette, east of Oakland. “It has much better restaurants and bars, and a much better social scene. That created a base of really talented engineers.”
To contact the reporter on this story: Alison Vekshin in San Francisco at firstname.lastname@example.org