Sizzling tech economy is fueling urban renaissance

SAN FRANCISCO — In cities across America, a sizzling tech sector is fueling an urban renaissance.

As the digital revolution broadens and deepens, tech has emerged as a mighty force creating jobs, spurring redevelopment of once-blighted urban cores, and giving cities an economic and cultural jolt.

But the boom comes at a price. For lower-income people and the squeezed middle class, soaring rents and home prices are pushing some cities out of reach, turning them into playgrounds for the privileged.

Rents in the top 10 largest U.S. metropolitan areas, where Internet and computer occupations play the biggest role in the local economy, rose 8% in the year ended June 2014, almost 40% faster than the gain in other metro areas, according to Trulia, a Web-based real estate company.

The winners in the new digital gold rush include longstanding high-tech names such as San Francisco, Seattle and Austin. But there are surprises, as well.

Since the recession ended five years ago, New York has added more tech jobs than any city except San Francisco, and Brooklyn has emerged as a tech hub in its own right, with hundreds of young code writers and content producers lining up at food trucks for lunch.

Even New Orleans is riding the wave. Tech jobs there rose by almost a third from 2007 to 2012. The sector's growing clout was celebrated Big Easy style when a coalition of local digital media companies sponsored the main stage at the city's 2014 French Quarter Festival.

From suburbs to cities

The trend marks a major turnaround from the early days of information technology, when growth was centered in sprawling suburban office parks in places such as Silicon Valley and Route 128 outside Boston. In the past five years, San Francisco's rate of tech job creation has far outstripped Silicon Valley's, and the pattern is repeated in Seattle, New York and elsewhere.

These days, even companies firmly rooted in the suburbs, such as Google, Apple and Microsoft, offer free daily bus or van commutes to employees who crave city life. What's more, to attract the young and the hip, many companies based in the suburbs have expanded their city offices.

Eric Butler, 28, rides a company bus from a stop near the flat he shares in San Francisco's Bernal Heights neighborhood to his finance job at one of Silicon Valley's biggest corporations. "It's a lot more fun here," the San Diego native said as he parked his bicycle on San Francisco's Market Street on a recent Saturday. "There's more things to do, more night life."

There is no single definition of what makes a city a tech center. Trulia ranks tech hubs based on the share of local employment in Internet, computer and software-related occupations. Michael Mandel, chief economic strategist at the Progressive Policy Institute, a Washington, D.C., think tank, has constructed an index based on the rate of growth of tech and information sector jobs and the size of the tech sector relative to the local economy. The Milken Institute defines tech hubs as metropolitan areas that are centers of research and innovation, and have high concentrations of skilled tech professionals, entrepreneurs and venture capital.

What all researchers agree on, though, is the biggest economic impact is being felt in cities such as San Jose, San Francisco and Seattle, where the tech sector is large and growing fast.

The fact that so much tech growth now is happening in cities reflects the evolution of the Internet. The rise of social networking, online media and digital commerce is putting a premium on design and creativity, making workers at Internet companies more like the artists, writers and media professionals who have always gravitated to cities. In addition, old urban industrial spaces are better suited for Web-style collaborative work than tech's traditional cube farms.

"For modern Internet companies, building in a multifaceted creative environment is crucial," said Chad Dickerson, CEO of Etsy, an online marketplace for handcrafted goods. Etsy is headquartered in Brooklyn's Dumbo neighborhood, across the East River from Manhattan. This area of old workshops and factories is a magnet for fashion designers, architects and ad agencies, and has become New York's trendy, have-to-be-there tech hub.

For cities, tech expansion can be a gold mine. No less than 13 of the top 25 cities in the Milken Institute's "Best-Performing Cities 2013" report are tech hubs. "These jobs pay as much as 20% greater than other starting salaries in our area," said Aimee Quirk, an economic adviser to New Orleans Mayor Mitch Landrieu.

The face of urban landscape is transformed

As well-heeled tech workers flock in, local economies are revitalized, and the face of the urban landscape is transformed. Those employees spend their paychecks on everything from designer hoodies to restaurant dinners. Apartments are built to house them. And the taxes they and their employers pay help balance municipal budgets, fund redevelopment projects and pay for a range of amenities.

"Areas with a faster-growing tech sector tend to have faster-growing non-tech employment, as well," Mandel said. Nationwide, private-sector non-tech wage and salary employment rose 5.4% from 2009 to 2013. But in the 10 large U.S. counties where growth of tech jobs had the biggest economic impact, non-tech jobs rose 10%, almost twice that rate, according to Mandel's preliminary analysis.

As techie ranks swell and the overall economy expands at a faster pace, demand for shelter heats up. That leaves more and more people priced out of the housing market.

"There are more bars, restaurant and museums," said Stanford University economist Rebecca Diamond, who has studied economic inequality in cities with large numbers of highly paid, college-educated workers. "But these cities are so expensive that all these great things are going to the high-skilled worker."

San Francisco is the extreme case. Tech jobs there have skyrocketed 56% in the past five years, more than any other large city in the nation. Overall, the city added more jobs than 47 states. The unemployment rate is down to 4.4%. Meanwhile, housing prices are rising at a 20% rate and the average rent in 2013 was $3,396 per month, the highest of any city in the country, according to a study by the Boston Consulting Group.

San Francisco's Mid-Market Street area, stretching a mile between the downtown shopping district and City Hall, has long been a no-go area, lined with vacant storefronts and empty offices, the haunt of crack dealers, street people and a few gritty urban pioneers.

Microblogging giant Twitter cut a tax break deal with the city and moved in two years ago, bringing hundreds of employees and a handful of other tech companies in its wake. Now Mid-Market has rushed headlong into a frenzy of demolition, new construction, and repopulation, producing surreal scenes of bedraggled men lounging next to shopping carts under signs touting luxury condos.

City officials say they are keenly aware of the danger that San Francisco will become a monochrome city of people who can afford high housing costs. They stress that surging tax revenue is helping the city fund affordable housing programs to preserve diversity.

"We're in a much better position to tackle these challenges," said Todd Rufo, director of San Francisco's Office of Economic and Workforce Development.

Analysts argue that low- and middle-income people are better off when tech boosts overall growth. They may no longer be able to live in Manhattan, San Francisco or Seattle, but it may be easier to find decent, higher-paying jobs.

Tyler Macmillan, executive director of San Francisco's Eviction Defense Collaborative, a legal aid group, said most of his clients are moving to places across the San Francisco Bay, where they face long, expensive commutes to their jobs.

"Who gets to live in a place like San Francisco?" he asked. "That's a really tough question."