Tech Broke Real Estate In San Francisco. Can Tech Help Fix It?

Mar 3 2014, 5:11pm CST | by

Tech Broke Real Estate In San Francisco. Can Tech Help Fix It?
Photo Credit: Forbes Business

A common critique of Silicon Valley says that the startups it funds overwhelmingly fixate on solving the problems — or “problems” — of the young, affluent and highly-educated — ie. the sort of people who work in Silicon Valley and launch startups.

Increasingly, the biggest problem those people face is one of their own collective creation: the skyrocketing cost of renting or buying a home in San Francisco. To be sure, it’s an even bigger problem for people who work in jobs other than tech, a field where even interns often make in excess of $75,000. The online real estate brokerage Redfin recently calculated that there are zero homes in San Francisco that would be affordable on the income of a public-school teacher, and only one home that a firefighter could buy without spending a third or more of his salary on mortgage payments.

Thanks to the corporate shuttle buses that make it easy to commute to the campuses of Google, Apple, Facebook et al, more and more tech workers are choosing to live in the city, exerting ever more pressure on prices. In the Times, Nick Bilton shows how the owners of a three-bedroom fixer-upper were able to flip it for 60% more than their asking price, mainly because it happened to be a block away from a bus pickup.

No wonder recent months have seen an explosion in the number of startups that, like Redfin, promise to restore some sanity to the process of finding a home in ultra-competitive markets like San Francisco. But can they?

I got a glimpse of the answer recently when I moved from Brooklyn to San Francisco. Before setting out on our weeklong apartment-hunting trip, my fiancée and I heard all kinds of warnings from our friends and the Bay Area about the madness in store for us. Partly because of that, we came forearmed with everything a prospective landlord could possibly as for, including references, letters of employment, bank statements and even mini-bios of each of us. We also downloaded Lovely, a mobile app for apartment hunters and landlords.

Lovely’s founder, Blake Pierson, says his focus is “primarily around creating more transparency in the process and who you’re dealing with.” To that end, it sends more than 30,000 push notifications a day alerting users when a relevant new listing has gone up on Craigslist, and provides an online application that, theoretically, should work for any listing. “It makes no sense, from a renter’s perspective, why you should have to fill out 10 different applications when 90% of the information is the same across all those applications,” Pierson says.

That’s true. The problem is that, in a market where landlords have all the leverage, there’s not much incentive for them to abandon their familiar old ways of doing things. Of the 20 or so listings we saw in our apartment hunt, I don’t remember a single landlord or broker who didn’t insist we use their application form.

On the other hand, the push notifications from Lovely were a godsend, saving us from having to waste time and battery life firing up Craigslist 20 times a day as we dashed around the city.

But none of this gets to the real core of the issue: sky-high rent. Can Lovely — or any other startup — do anything about that? “We’d like to be able to do more around making everything cheap in San Francisco,” says Pierson, but for now, the opportunity is mostly at the margins. Most residential rentals in the U.S., he notes, are owned by landlords who own five of fewer units. Smaller landlords like that are the best bet for price-sensitive renters, he says. “What most of them care about isn’t necessarily maximizing revenue on that unit, but in getting the best tenant — someone who will pay the bills, pay the rent on time, take care of it.”

Much as your auto insurance will give you a better rate if you have a safe driving record, Pierson believes renters with good Lovely profiles will be able to negotiate lower rents. “We’ve seen it where landlords will actually drop the price by a couple hundred bucks a month” just to get a more desirable tenant, he says.

That’s one way it could work out, in ideal circumstances. More commonly, though, Pierson says Lovely helps them by “setting the right expectations upfront.” In other words, it’s a reality check.

I also discussed this with Eric DeMenthon, creator of PadMapper, a tool that plots Craiglist listings on a map and makes them easy to search by multiple variables. Did he think services like his could make a meaningful difference in the local real estate market? Via email, he responded:

While sites like PadMapper can help make the rental market more efficient and decrease vacancy rate by minimizing the time apartments stay empty, they can’t solve the fundamental problem that San Francisco is facing, which is that many more people want to live there than there are available housing units. When demand greatly outstrips supply like this, prices tend to rise very quickly. Normally, rising prices would lead to a construction boom, as developers swoop in to make larger buildings to capitalize on the situation, which tends to bring prices down. In San Francisco’s case, however, developers seem to be stifled by people not wanting their small buildings’ views of the bay blocked, or the character of their neighborhood changed by replacing quaint 2-3 story buildings with high-rises. Politicians like to talk about increasing the number of affordable housing units, but that’s largely a feel-good measure that would actually increase the price for everyone who doesn’t qualify, which will make things worse for those who just barely miss qualification.

Allowing a building boom to happen would decrease the rents for everyone. It’s silly to blame tech workers for wanting to live in a great city and using the resources they have to try to compete to do that — it’s the same thing anyone would do. The root of the problem is a lack of supply — if that is fixed, we can start to focus on the benefits of bringing tech workers to the city, like a great boost to the tax base and the local economy.

There you have it. Technology can streamline the process of finding a place to live in “supply-constrained” cities like San Francisco, but when it comes to the city-wide surge pricing of rents, it’s largely impotent. Until someone builds a few hundred thousand more units, your best best is probably to sign up as a host on Airbnb and get the insanity working in your favor for a change.

Source: Forbes Business


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