As I See It: Digital Digs

December 10, 2018 Victor Rozek

My father once bought a house in San Francisco for $15K and change. By any measure it was a modest home, three bedrooms, one bath, 1,300 square feet, located in a lower-middle class district in the Upper Mission. Working class blue-collar families lived there, and our neighborhood was chockfull of diversity long before that word became both fashionable and divisive. Just on our block we had German, Mexican, Italian, Polish, and Chinese families. Kids played in the streets, and at dinnertime front doors opened and mothers called for their children in thickly accented English.

One of the unique characteristics of San Francisco at the time was that although the city boasted a high level of sophistication and beauty, people of modest incomes could still live there. But that was long ago: long before the first men walked on the moon; long before some of those middle class kids were sent to die in Vietnam; and decades before anyone ever heard of Silicon Valley, or cell phones, or used “Google” as a verb.

But things change, as they are wont to do. And it was the emergence of the IT sector, its rapid growth in Silicon Valley, and its eventual economic dominance that changed the housing realities in the Bay Area. If the good news is that IT jobs are generally well compensated, the bad news (at least for home buyers and renters) is that wherever computer technology thrives, housing costs undergo steroidal transformations.

The other day, just for yucks, I looked up my father’s old house on Zillow. The modest house is still modest (even more so by today’s standards). In fact not much appears to have changed except the garage door. The architecture is still uninspired and all the houses on the street are squeezed together, wall to wall, without anything remotely green or living to break the monotony. So, how much could it possibly be worth?

It was probably a good thing that I was sitting down when I saw the estimated value: $1,068,735. Damn, I thought, too bad the old man didn’t hang on to it.

For homeowners, of course, the impact of IT on property values is a godsend. Even people who know nothing about investing can look like hedge fund managers if they just hang on to their homes long enough, then sell and move to rural Kansas. But imagine the plight of your morning barista, or anyone in a service industry living in or around San Francisco. Forget home ownership. If they simply wanted to rent my father’s old house it would cost them over $4,300 per month.

Which is why not all residents of Long Island City are jumping for joy after being declared “winners” by Amazon. The behemoth’s recent announcement – after its long and well-publicized search for ideal subsidies – of its intention to build a 4 million-square-foot campus in Queens was met with mixed reactions, as evidenced by protesters carrying signs that read “Scramazon.”

For non-property owners, the promise of 40,000 future jobs that Amazon dangled in front of city management, means little more than decades of congestion and sharp competition for housing in a rental market that is already overpriced by national standards. Plus, to be granted the right to worship at the temple of Bezos, an incredible expenditure of public funds was required to out-bribe 237 other cities eager to host Amazon.

For its part New York promised to fork over $1.5 billion in incentives and grant Amazon 25 years of property tax abatements. And it doesn’t take Nostradamus to divine that if the river of financial inducements doesn’t keep right on flowing, in 24 years Amazon will announce its search for a new campus location.

Regardless, the fate of Long Island City has already been written in technology hubs around the country. As Robert Reich correctly points out, technology isn’t a thing; it’s more than a finished product. “It’s a process of group learning. And that learning goes way beyond the confines of any individual company. It happens in geographic clusters, now mostly along the coasts.”

Indeed, the best and the brightest are leaving the heartland and migrating to technology centers in places like L.A., the Bay Area, and Seattle on the West Coast; and New York, metropolitan Washington, and Boston on the East. The result is what Robert Reich calls “widening inequalities of place.”

Doubtless, Long Island City will experience a digital boom time. By one report, open house tours in the surrounding area have already increased by over 400 percent. But Reich is not as interested in what will happen in Queens, as he is in what didn’t happen elsewhere. “Relative to these booming hubs,” he says, “America’s heartland is becoming older, less well-educated, and poorer.”

His inference is that the rise of information technology clusters has had inadvertent outcomes, leaving selected areas of the country struggling, disconnected from the nation’s economic future, and increasingly anxious. Reich quotes a Brookings study which documents that between 2010 and 2017, nearly half of America’s employment growth centered in just 20 large metro areas. Those segments of the population are affluent and well positioned for the future; while much of the rest of the country remains tethered to the past.

Which explains why desperate cities from Birmingham, Alabama, to Anchorage, Alaska; from Stonecrest, Georgia, to the entire state of Idaho, lifted their skirts and waved as Bezos jetted by on his way to New York.

Reich, being a political animal, sees all of this through political lenses — namely how the clustering of IT serves to widen the divide between red states and blue. But there’s an enduring irony at work here that has ridden the back of technology probably since the creator of the wheel was run over by his creation: The Law of Unintended Consequences.

Those who promote a specific technology usually do so on the basis of its benefits to humankind. Thus, television was going to make us smart, but is now a conduit for fake news. And Facebook was going to unite the world, one connection at a time, but instead was used to spread fear and manipulate elections.

Like tariffs, which help selected sectors of the economy, but hurt others, technology — particularly in an information economy – will typically do more to help educated, affluent users, than less sophisticated ones. The irony is that in Long Island City as in San Francisco, places that are already too expensive, even the most ardent neo-luddites are going to get a whale of a boost in their property values courtesy of the technology they disdain.

Which brings us back to a modest house, on a modest street in what has become a very immodest city. Amazingly, my father’s old house is still standing: it’s become too valuable to tear down. A half century later it remains proudly defiant, an ugly, unaffordable monument to the unintended power of technology.