Governor Jerry Brown recently proposed legislation that would streamline the path for large-scale development across California. It could have a huge impact on growing housing supply in San Francisco, specifically, which suffers from NIMBYism and a lengthy, local review process for building developers.
The additional supply spurred by the legislation will help abate the rising housing costs — and is a good thing. But in the end, it may not matter much. Within about five years a new technology revolution will create a massive shift in where people choose to live and, as a pleasant byproduct, will solve San Francisco’s real estate crisis, independent of any legislation.
Let’s start with some historical context. In 1900, 30 percent of Americans lived in cities; by 2010, that figure had grown to 81 percent. Follow the jobs — in 1900, farmers made up nearly 40 percent of the labor force; today it’s roughly 2 percent. Clearly, jobs have moved to cities, which has created a cycle of needing more people to serve people already in those cities (think: cashiers, waiters, etc.). And people like to live close to where they work. The challenge is there’s only so much of San Francisco to go around.
But if you could enjoy all the benefits of living in San Francisco and also wake up in a beachfront property and also pay half the rent of living in the city, that would seem like a no-brainer for most people. No, it’s not a Craigslist scam. And no, I can’t offer it to you just yet. But pretty soon that’s exactly the option we’ll all have. Three technologies will completely change how we view real estate and make this ideal scenario possible: self-driving cars, the Hyperloop and virtual reality.
People are going to disperse because technology will make it easier to do so.
Self-driving cars are coming — and fast. Every major auto manufacturer has committed to having a commercially available self-driving car by 2020. And Tesla and Google each expect to deliver well before then. We can quibble on the adoption curve, but I for one would much rather be carted around on-demand and simultaneously spend less money than me driving myself everywhere I need to go. I’m guessing I’m not alone.
There are two notable consequences of self-driving cars becoming widespread: 1) Parking spaces can be largely eliminated and repurposed for more functional uses, and 2) Traffic can essentially be eliminated as “drivers” become more efficient, eliminating log jams and accidents as there are fewer cars on the road.
Parking is estimated to account for at least 25 percent of surface space in most American cities. Not all of this space can be used for new development — and, of course, new development takes time, so won’t have an instant impact. But even if just a quarter of that space becomes available within a few years, it will be a boon for quickly growing housing supply. More critically is the elimination of traffic. The definition of a “convenient” location as it relates to getting to school, work or social functions expands dramatically compared to what it is today.
Half Moon Bay, for example, is a delightful place that few people working in Silicon Valley seriously consider because the commute today would be untenable. But if it was 30 minutes door-to-door, and you could read or watch a TV show, then yeah, that would be different. Virtually any place within 40 miles of your desired hub becomes a perfectly reasonable place to consider. This spreads the demand over a much wider region, likely increasing the price of outlying areas (like Half Moon Bay and Napa), but reducing pricing pressure on the central core of San Francisco/Silicon Valley.
The next technological breakthrough to consider is the Hyperloop. If you’re unfamiliar, it’s like the vacuum tube you use at the bank drive-thru, but life-size, and is expected to move people at up to 700 miles/hour. If successful, you’ll be able to go from San Francisco to LA in about 30 minutes.
There are many hurdles remaining, but recently Hyperloop One, one of the nascent players attempting to build out the technology, completed a proof of concept outside of Las Vegas and has the stated goal of transporting people by 2021.
There’s only so much of San Francisco to go around.
Combined with a fleet of self-driving cars available at your beck and call, you can now reasonably work in Silicon Valley and extend your range of “convenient” locations even farther. It’s no longer a 40-mile radius of your desired hub, but 40 miles from any Hyperloop station that can get you to your hub. You could practically live anywhere along the Pacific coastline and have a door-to-door commute using the Hyperloop and self-driving cars that would be shorter than the typical drive from San Francisco to San Jose — and you could be engaged in other activities the entire time.
You could live in charming, sea-side Encinitas for 60 percent of the typical rent in San Francisco. Or Del Mar for about half as much. Heck, live in posh La Jolla and pay the same thing and your commute to Silicon Valley is still less stressful than it is today.
Finally, we have virtual reality coming in to totally upend things, perhaps rendering the commute obsolete altogether. There’s a reason Facebook bought Oculus for $2 billion. Facebook sees the future of social interaction as happening through VR. Microsoft has already shown demos of people in completely different places physically, interacting seamlessly almost hologram-like in a way that’s both creepy and awesome (they appropriately call it Holoportation).
According to Gallup, in 1995, 9 percent of workers telecommuted for work at least occasionally; by 2015 it grew to 37 percent. But for all of our current technology, telecommuting has drawbacks — it’s generally not as good as being in the same room as a colleague. VR is changing that. And with it, the rate of telecommuters will grow dramatically.
Perhaps there are some lingering expectations of people being in the office part-time to build camaraderie (drinking virtual beer together isn’t as fun after all), but the five-day-a-week commute will be undesirable to employees — and to employers who want a recruiting advantage and prefer more workable hours for their employees and can offer it by eliminating their commute.
Instead of having a few densely populated pockets like we do today, people are going to disperse because technology will make it easier to do so and it’ll be much cheaper to live. Real estate prices will shift — not just in San Francisco, but in every major city. And places that hold universal appeal (e.g. beachfront/close to mountains) will draw more people as a result.
So in regards to Jerry Brown’s legislation: Yes, go for it. More housing is a good thing; who really knows how the future will play out and affordable housing is needed sooner rather than later. But I’m betting in a decade we’ll look back and say it didn’t really matter in the end.
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