How Remote Work Is Reshaping San Francisco As Tech Workers Disperse

The exorbitant costs of living in the Bay Area, and San Francisco in particular, have been notorious for a generation. But they were tolerated because of prestigious tech jobs with great compensation.

But data now show that the behavioral economics are shifting, with the first measurable declines in population - and in housing costs - in recent memory. Whether San Francisco is 'hurt' by the exodus may be less important than the way in which tech companies and their employees benefit from new perspectives - and an easier lifestyle. JL

Katherine Bindley reports in the Wall Street Journal:

A survey at the end found 15% of Bay Area professionals who responded had left the region since the pandemic began. Of those remaining, 59% said they would consider relocating if their companies allow it.The median rent for a one-bedroom apartment in San Francisco in the month of July dropped 11% compared with a year prior. Property listings in San Francisco were up 96% compared with last year. Many of those leaving take a pay cut. But the employees say even smaller paychecks can buy more elsewhere.

For years there’s been talk of a potential exodus from the San Francisco Bay Area, spurred by the exorbitant cost of living and long, slogging commutes. But before coronavirus, leaving the area meant walking away from some of the best-paying and most prestigious jobs in America.

There are signs the exodus is finally happening. Silicon Valley, America’s signature hub of innovation, may never be the same.

Tech companies are giving their employees more freedom to work from anywhere. Employees are taking them up on the option to relocate, forming the beginnings of a shift that could reshape not only the Bay Area, but also the cities where these tech workers are making new homes.

It’s early days, and information about who’s leaving and where they’re heading is just starting to come in. But for those who are looking, the evidence is there.

Two things suggested to Justin Thompson and his wife that they weren’t alone in deciding to move out of San Francisco this summer. After five years of renting an apartment, the couple had decided to buy a three-bedroom house in Phoenix.

First, their landlord offered to reduce their rent by $250 a month if they’d finish out their lease through October. (They declined.) And second, when Mr. Thompson went in for a dental checkup and said it would be his last, his dentist was unsurprised.

“He said, ‘I have people coming in almost daily telling me the same thing,’” said Mr. Thompson, who works for a data analytics firm.

Google-parent Alphabet Inc. last month said employees won’t be returning to the office until at least the summer of 2021, in part so they can sign one-year leases somewhere else. Facebook Inc. recently said its employees could stay away for that long too. The social-media giant, which has 52,000 employees, expects to shift to a substantially remote workforce over the coming decade, and is now recruiting a director of remote work. Other companies including Twitter Inc. and Slack Technologies Inc. have declared most of their employees can work remotely for good.

Cybersecurity firm Tanium, headquartered in Emeryville, Calif., across the bay from San Francisco, also told its 1,500 employees at the end of June that they could work remotely permanently. Since then, 16% of the workers based at Tanium’s headquarters have either formally requested or inquired about relocation, according to a spokeswoman. The company’s chief executive, Orion Hindawi, relocated to Seattle last month.

Around 40% of Facebook’s employees were interested in permanent remote work, CEO Mark Zuckerberg said in May, citing an internal survey. Three quarters of those employees said they might move to another place. Facebook declined to say how many employees have formally requested to relocate.

A survey of 371 Bay Area tech workers, conducted in mid-May by the recruitment marketplace Hired, found that 42% would move to a less expensive city if their employer asked them to work remotely full-time. Another survey at the end of July by Blind, a platform for workers to discuss their jobs anonymously, found that 15% of more than 3,300 Bay Area professionals who responded had left the region since the pandemic began—though it was unclear how many considered their moves to be temporary. Of those remaining, 59% said they would consider relocating if their companies allow it.

While it’s too soon to measure the total net outflow of tech workers from the Bay Area, it’s already affecting real-estate prices. Rents have started falling for the first time in years. The median rent for a one-bedroom apartment in San Francisco in the month of July dropped by 11% compared with the same month a year prior, according to rental-listings platform Zumper, which analyzed nearly 11,000 listings in the city and several surrounding areas. In Cupertino, home to Apple Inc., and Mountain View, home to Google, the median rent for one-bedroom apartments fell by more than 15%.

“The majority of techies in the Bay Area are not about to move out, but it is a significant enough minority that it’s moving the market,” said Zumper CEO Anthemos Georgiades. “This year is the first year that it’s actually real.”

While the pandemic has slowed or stalled rent increases in cities nationwide, San Francisco stands out, said Joshua Clark, an economist at real-estate search service Zillow. Rents in the city have fallen for the first time since the firm began tracking in 2014.

“The fact that San Francisco has turned negative, that is rare,” Mr. Clark said. He attributes that in part to the heights that San Francisco’s housing costs had reached before the pandemic.

Those who are leaving the area permanently cite a variety of reasons, but high housing costs tend to be at the top of the list. Between 2009 and 2019, the median cost of a single-family home in the San Francisco Bay Area nearly tripled to around $1 million. Even renting a bunk bed in a room with five other people can cost over $1,300 a month.

The region is expensive in other ways too. Getting a cheeseburger and fries delivered can easily cost $25. An ice cream cone can cost $7. Before the pandemic hit, classes at boutique gyms routinely ran $30.

A large departure of tech workers could have significant implications for the industry, the Bay Area, and for other cities across the U.S. seeking to draw more tech jobs, say executives and analysts.

Surveen Singh, 30 years old, moved from Houston to San Francisco nearly six years ago for a job at a large tech company. She used to spend roughly three hours a day commuting between the city’s west side and her company’s headquarters in Silicon Valley. Like many tech workers, Ms. Singh would work while sitting in traffic on company-provided shuttle buses.

She enjoyed working in headquarters, where perks included free meals, midday gym workouts and a strong sense of community. But when the coronavirus slammed into California in March, she was in Houston for a family wedding, and she hasn’t returned. Once her company opened up the possibility of permanent remote work, she asked to relocate to Los Angeles. She agreed to a pay cut but is convinced she’ll get more for her money and have a better quality of life.

“In San Francisco, no living space seems that normal. There’s always a weird element to it,” said Ms. Singh. “You don’t have a closet or a dishwasher—or there’s no parking.”

Like Ms. Singh, many of those leaving have to take a pay cut. Tech companies including Facebook and Slack have said that relocating will affect people’s compensation. A Twitter spokeswoman said the company is still reviewing its policies but that it has “a competitive approach to pay localization.”

But the employees say even smaller paychecks can buy more elsewhere.

Emily Fortner says the mortgage payment on the 2,300-square-foot house she and her husband bought last month in Durham, N.C., is about $1,500 a month less than the rent they were paying for a Berkeley home less than half its size. The 32-year-old, who works in content strategy for Twitter, and her husband, who works at Fitbit Inc., both took pay cuts. But in addition to their reduced housing costs, they also don’t have to spend money on commuting anymore, or pay a dog walker. North Carolina’s income and sales taxes are also lower.

“The small adjustment down is not going to harm our budget,” she said.

Ms. Fortner and her husband used to take advantage of San Francisco’s art, culture and restaurants. But their favorite things to do in the city have all been limited by the virus in recent months, and it’s unclear when they’ll be comfortable partaking in them again: “That made us start thinking, why do we even want to be here?” she said.

Jaime Contreras, 41 years old, recently got a new job with a California-based startup. After 14 years in the Bay Area, which included work at Airbnb Inc. and Uber Technologies Inc., he decided during the pandemic to move closer to family, buying a two-family duplex in Racine, Wis., for $160,000. Currently unmarried with no kids, he plans to rent out one level. Since he negotiated his salary as a remote worker, it won’t change when he moves to Wisconsin.

“If you have the luxury of maintaining your Bay Area salary and moving elsewhere, it goes a lot, lot longer,” he said. “I’ll live like a king.”

In Denver, Phoenix and Austin, homes have been selling at accelerated rates in recent months, according to Zillow. Nationally, the median list price of homes was up 6.6% for the year ended Aug. 1, while in San Francisco, list prices are down by nearly 5%.

Some of those leaving the city aren’t going far. Rents have gone up in Sacramento, about 90 miles from San Francisco. In Marin county, across the Golden Gate Bridge, the median home price for detached homes rose 5% in June compared with 2019, according to the county assessor’s office. There’s little housing for sale and real-estate agents say the pandemic has prompted bidding wars. “It’s nuts right now,” says Jennifer Falla-Firkins of Sotheby’s International Realty. “All my buyers are very frustrated.”

And across the Bay Bridge in Oakland, demand for single-family homes is outpacing supply, said Taylor Marr, an economist with Redfin.

“The Oakland market is rebounding much stronger than the San Francisco market,” he said.

Laura Dodd, 36 years old, a program manager for the software-development company Atlassian, kept in mind that the workplace might look different a year from now when she and her husband bought a four-bedroom house in her hometown of Sacramento. After eight years in San Francisco, Ms. Dodd, who is pregnant and already has a toddler, received approval to work remotely for a year. She and her husband were drawn to the idea of owning a home, which they couldn’t afford in San Francisco, and by being closer to family who could help watch the kids at a time when day care is unreliable.

But she’s also hedging her bets. Part of Sacramento’s appeal was that if her colleagues start working at the San Francisco office regularly, she can drive down on occasion. If being away from the office starts hurting her career, she’s prepared to rent out their Sacramento house and move back.

“I get it, ‘Lean In,’ but this is the time to maybe cool it and do what I can to make it work,” she said.

The San Francisco region had already been losing residents in recent years. From 2016 through 2019, more people moved out than moved in. But traditionally, the people leaving have been lower to middle income, according to Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto.

If more tech workers were to flee, traffic would likely improve and housing costs could come down, but there’d also be less tax revenue for an already stretched government, and less money spent at local businesses, he said.

“Unless we build more housing, there will be plenty of people to come in and bid stuff up,” said Mr. Levy. “Really, the loss of high-income people makes life more difficult.”

Some researchers say it wouldn’t take that many tech workers departing for there to be ripple effects.

“Even just 5% I think would be a massive alteration,” said Mark Muro, a senior fellow with the Brookings Institution. Regional economies around the U.S. could benefit from being home to remote workers from the biggest companies. And while the tech giants themselves might keep their top talent close by, ultimately they too could benefit from more distributed recruitment strategies.

“I think that the tech companies have realized that they may be missing actual ideas or talent out in the rest of the country,” he said.

In fact, tech companies could start upping their recruiting efforts not just all over the country but all over the world. That raises the potential for the tech labor market to be upended by globalization the same way other sectors of the U.S. labor market have been.

“American tech workers would be in great competition with those in India and Russia and Slovenia,” he said. “It certainly could subject tech workers to global talent markets that could in that sense bid down the value of their work.”

Mr. Muro said he doesn’t see Silicon Valley losing its competitive edge: Innovation in things like artificial intelligence will still come predominantly out of this area and there will still be tech workers who want to be here. Talent just may be more spread out than before the virus.

Amy Webb, an author and CEO of the research and consulting firm Future Today Institute, said smaller cities that are desirable to tech workers would be smart to plan for issues like increased traffic, parking problems, more waste and wealth disparities from new clusters of higher-wage earners.

On the plus side, even a small wave of tech migrants would mean a larger tax base and the potential for new tech hubs to grow.

“Maybe the people stay with those big tech companies forever or maybe they spin off and meet with others and start building new things,” she said.

Cities should develop long-term strategic plans and then court tech workers the way they did Amazon.com Inc. when it was shopping for a second headquarters, she said, offering property-tax incentives to those willing to move in exchange for donating some of their time and tech skills to local schools, for example.

“If you do this right, this is how a city like Baltimore—or Detroit or pick any number of other cities—this is how you rebuild for the longer term,” she said.

Some in the tech industry caution against overreacting to the early signs of Silicon Valley flight.

“There’s always been this thing about the exodus out of the Bay Area,” said Mehul Patel, the CEO of Hired, who has lived in the area for more than 20 years. He recalls that after the implosion of the dot-com bubble that peaked in 2000, “everyone was like, ‘Everyone is leaving. You can do a startup anywhere,’ and we were back to where we were within a year or two.”

There’s already evidence that the initial allure of remote work is starting to wear off, and that early productivity gains might have been driven by people fearing layoffs.

Still, Mr. Patel believes coronavirus will have a long-term impact on recruitment in tech. Hired has been trying to fill a product designer role in San Francisco for over a year but couldn’t find candidates willing to move. The company has since made the role remote, and is considering candidates from around the country.

Anthony Emberley, 25 years old, who was laid off from his job as a product manager at Uber in May, flirted with the idea of taking a break from San Francisco but has decided against it because he’s starting his own company.

“Even with this exodus that is happening, I still think that S.F. is the best place to be,” he said.

Mr. Emberley did negotiate a 10% rent reduction for the 3-bedroom apartment he shares with two roommates.

“We’re happy with what we got,” he said. “It was $5,250 before for a three-bedroom, which was already less than the average in S.F.”

Until the U.S. Census Bureau releases data, the only real way to know how many people are moving is from the tech companies themselves. Apple declined to share information on the volume of employee-relocation requests, as did Twitter and Slack; Google didn’t respond to requests for comment.

For Carolyn Guss, 44 years old, coronavirus sped up her long held dream of living in the mountains—something she thought wouldn’t happen until her children, 8 and 10, were in college.

“I had this idea in my head that the Bay Area is the center of the tech universe and if you don’t live in the Bay Area, you can’t really progress your career,” said Ms. Guss, a vice president of marketing for a software company.

In March, she drove with her family to their condo in Park City, Utah, to ride out the pandemic. They soon realized they didn’t want to leave. The lack of commute, affordability of housing, access to ski slopes and Utah’s lower tax rate all argued in favor of making the move permanent, she said.

One day, the CEO of Ms. Guss’s company asked if she was still in Park City. When she said yes, her boss asked why she’d bother coming back.

“I said, ‘Well that’s funny you should mention that,’” said Ms. Guss.

Her company approved her request to make her relocation permanent, and she and her husband bought a home in Park City that’s twice the size of the house they owned in Burlingame, Calif. for the same price. Their old house had a garage so small they didn’t park their car in it. The garage in the new one fits four cars.

When Ms. Guss and her husband listed their California home, which sold for under asking, their real-estate agent said people were eager to buy homes with yards outside of San Francisco proper. Would-be buyers expressed interest, but there was a catch: Too many people were trying to sell in San Francisco. During the first week of August, property listings in the city of San Francisco were up 96% compared with the same week last year, according to Zillow.

“We realized they couldn’t sell their place in San Francisco,” said Ms. Guss. “When did you ever think that you would say the sentence, ‘Yeah, I can’t sell my place in S.F.’?”