It’s important to note that whether San Francisco is in a “Doom Loop” is a matter of fierce debate. Below are some arguments for and against the idea:
These Factors are Contributing to a Negative Perception about San Francisco:
- Homelessness Crisis: San Francisco has a persistent homelessness problem, which has led to concerns about public safety, sanitation and quality of life in certain neighborhoods. This issue can impact the city’s image and attractiveness to residents and visitors alike, making them want to leave or stay away.
- Tech Industry Layoffs and Downsizing: The city’s heavy reliance on the tech industry for economic growth has made it vulnerable to fluctuations in that sector. Economic downturns and staff cuts in the tech industry can have a disproportionate impact on San Francisco. Workers, residents and businesses leaving the city reduce the city’s tax base.
- Work From Home Reduces Demand for Office Space: Although several companies are requiring their employees to work in the office, few are demanding that employees work exclusively in the office. Most companies have adopted a hybrid model that allows employees to work from home at least part of the week. Since Downtown San Francisco is almost exclusively for commercial use, the area can feel like a ghost town on Mondays and Fridays. Lower demand for office space results in lower business tax revenues, which fund all of the City services that we receive and could plunge the city into a budget deficit.
- Public Safety Concerns: Rising crime rate, including property crimes and violent incidents have raised alarm among residents, visitors and businesses, leading to further departures.
These Factors Contribute to San Francisco’s Resurgence:
- Tech Industry Resilience: While there have been fluctuations in the tech sector, San Francisco’s position as a global technology hub remains strong. The city continues to attract tech talent and investment. The San Francisco Metro Area, along with New York City and Boston, consistently attracts nearly half of all Venture Capital investment in the US. Moreover, the burgeoning AI industry is concentrated in San Francisco.
- Economic Diversity: San Francisco’s economy is not solely reliant on technology. It has a diverse business landscape, including finance, healthcare, tourism, and more, which can mitigate the impact of any one sector.
- Innovation and Entrepreneurship: The city has a long history of innovation and entrepreneurship, with a robust startup ecosystem. This culture of innovation can contribute to economic resilience and growth.
- Policy Initiatives: San Francisco has implemented various policy initiatives to address housing, homelessness and public safety. These efforts, if successful, could improve the city’s housing stock and safety on the streets.
- San Francisco’s Ability to Re-Invent Itself: San Francisco has experienced a string of disasters all the way back to the Great Earthquake and Fire of 1906, when a large section of the city was destroyed and nearly 300,000 people lost their homes, but rebuilding began immediately. Other doomsday events include the 1989 Loma Prieta Earthquake, the Dotcom Bubble and Bust in 2000 and the Great Recession of 2009. Each time the city has come roaring back, bigger and better. The city also remains culturally rich, with a vibrant art scene, diverse communities, a tolerant environment and a high quality of life that is unique the world over and which continues to attract residents and tourists from around the world. Anyone
As it relates to real estate, all this talk of a Doom Loop has shifted the mindsets of both buyers and sellers. Prices are down from last year and we have had sellers take their homes off the market rather than accept offers below their expectations. Other sellers are holding off entirely, thinking that things will get better, interest rates will decrease and prices will rebound in the future. That translates into fewer listings and a shortage of properties on the market.
The result is a bifurcated market. Demand for select turnkey homes in popular neighborhoods is up, resulting in bidding wars for the best houses. However, properties that have perceived flaws are languishing on the market, resulting in downward pressure on prices in the overall market.
The lower prices create opportunities for buyers to lock in the low purchase prices, which also allows them to set their property taxes at a lower level. Thanks to California’s Proposition 13, which requires that properties be assessed at market value at the time of sale and imposes a limit of 2% per year on any property tax increases, that lower purchase price will pay dividends year after year.
The term “Doom Loop” doesn’t accurately capture all the dynamics that are affecting the San Francisco market. The national press is unfairly promoting negative stories about San Francisco and not covering all the positive things that happen every day. Not enough press coverage is devoted to the things that are going right in the city because that is not considered “news”.
It’s important to note that while San Francisco certainly has challenges and concerns, there are also strengths and opportunities that can influence the city’s trajectory.
Thinking of buying or selling real estate? Call me to discuss your best options.