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Priced Out: Middle Class 2.0

Co-published by Fast Company
Is our budding tech utopia setting the stage for a working-people’s dystopia? Welcome to California’s cost-of-living crisis.

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Eric Pape

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In flux: San Francisco's Mission District. (Photo: Eric Pape)

Are longtime San Francisco residents just collateral damage of the tech boom, or is their dispersal a necessary feature
of a new economy?


Co-published by Fast Company

The Internet has become society’s collective brain; an awe-inspiring collection of texts, photos, videos, drawings, research data, communications tools and how-to guides. The ultimate impression for DIY technophiles is that we can learn to do just about anything we want. “You have,” as tech thinker Byron Reese explained in a recent interview, “the powers of gods now.”

That may be true, but gods likely live better and with a lot less anxiety than the majority of Californians these days. Yes, the tech titans—people like Elon Musk, Jeff Bezos and their acolytes—seem to be doing fine in palatial homes from the hills of San Francisco and flatlands of Silicon Valley to the waterfronts of Malibu and Venice’s Silicon Beach. And many of the industry’s well-compensated employees—like the typical Facebook employee who last year earned $240,000—can still squeak by in white-hot real estate markets near their work. But given the outsized space that blossoming tech-and-innovation companies are filling, especially in formerly middle-income neighborhoods of California’s cities, it is reasonable to ask: How much room will they leave for the rest of us?


A Darwinian moment is eliminating a once-fundamental position in a growing number of restaurants: The waiter.


The rules of American capitalism, after all, are anchored to “creative destruction”; old models break down as more successful ones emerge. The pace of change in the San Francisco model is key to why so many working people are bailing on a thriving, charismatic town, or are considering doing so. It raises a question: Are they just collateral damage of the economic boom, or are the forces pushing them out a necessary feature of a new economy that needs to free up space in a tight housing market? Basically, if you can’t build enough new housing for much-needed employees—managers, engineers, coders, designers, data scientists and the like—you need to liberate the housing of people who aren’t as important to your business model. This process is happening largely via the old capitalistic method of outbidding people.

Today this Darwinian moment is consuming an ever-increasing array of once-fundamental job positions in a growing number of restaurants in the city, including: The waiter. But could tomorrow lead traditional teachers, police officers, tax accountants, bus drivers and many others to be declared cost-ineffective and therefore obsolete?


For those thinking it makes more sense to rent than own, San Francisco’s tenants pay more for a run-of-the-mill apartment than New Yorkers.


San Francisco, a city of 870,000 people who are packed into the most densely populated major American city west of New Jersey, has long had tight limits on home construction. This has meant that the hundreds of thousands of new jobs that the tech-and-innovations sector created in recent years haven’t come with suitable housing options for incoming employees. Throw in a flood of money—hundreds of billions of dollars from those companies—and the result is surging prices in a tech metropolis that continues to draw new arrivals who either have lots of cash or who hope to earn it there.



 

In much of urban California, historically middle-class professionals—firefighters, homebuilders, young lawyers and countless others lower down the economic food chain—can no longer afford to buy homes because they simply can’t compete in their local real estate markets.The California Association of Realtors calculated early this year that it took an annual income of more than $330,000 to afford the typical single-family home in San Francisco, as well as high six-figure salaries in many once-affordable parts of the East Bay. And for those thinking it makes more sense to rent, San Francisco’s tenants pay more for a run-of-the-mill apartment than New Yorkers. The result is a city where the median household income, which might sound generous to outsiders at nearly $97,000, affords only a low-income existence.


Peter Leyden: “Someone who is rooted in dying industries, in their fifties, is not going to retrain for the next era. It is cruel and sad . . . But it is kind of inevitable.”


Peter Leyden, a former editor at Wired magazine-turned-CEO of a San Francisco-based media startup, suggests that the phenomenon is due largely to an influx of brainpower and skilled labor that is so much more valuable than what was there before: “I’ve thought about the housing piece and how it is core to this middle-class squeeze,” says Leyden. “If you really pull back… This is a remake of the whole West Coast. You are watching a tech-driven innovation economy … that is being rebuilt in real-time.”

The Bay Area, he says, “is turning into a global city” on par with the peak historical moments for Paris, London, Hong Kong and New York. “A new middle class will emerge that is a California model, that doesn’t exist now,” Leyden says of the decade of change he envisions. “This is a good thing, but it is kind of being stuffed into an old thing.”


The cost of housing in San Francisco has risen so high, so quickly that the old supply-and-demand equations may be breaking down.


He acknowledges that certain people are not going to transition into the new economy. “There is without doubt a demographic segment of America and the West Coast that is not going to recover,” he says. “Someone who is rooted in dying industries, in their fifties, is not going to retrain for the next era. It is cruel and sad–and for the individual, it is horrifying. But it is kind of inevitable.”

“The old agreement was: If you work in the public sector; you will have pensions and consistent wages that you can use to afford ranch homes all over Southern California. That plan in the 21st century doesn’t work anymore. It is gone,” he adds. “Many of the extreme problems you’re seeing here, like homelessness and affordability, the gig economy and the lack of safety nets, are what happens when you go crashing helter-skelter into the future.”

“The old system is hanging on, and trying to prevent the next thing from being born,” he says, “but it is being born.”

When Real Estate Disrupts Work

The laws of supply and demand typically dictate that if enough important employees can’t afford market rents, their bosses will have to increase salaries so they can live close enough to hold their jobs. But the cost of housing in San Francisco has risen so high and so quickly that this equation may be breaking down.


Byron Reese: “The gig economy and the lack of safety nets are what happens when you go crashing helter-skelter into the future.”


Yes, some employees are simply seeking out market-rate housing that is ever-further from work in search of some semblance of affordability, and then they suffer through lengthening commutes in worsening traffic. But in that global capital of disruption, some seemingly indispensable jobs no longer seem absolutely necessary.

A growing number of high-end restaurants in San Francisco (and beyond) have made a transformative change. Some owners and managers, under financial pressure from sky-high commercial rents, concluded they cannot afford to pay their wait staff the $15 per hour minimum wage—a $4 per hour increase over the last four years. And even if they could, the wait staff still couldn’t rent out places within range of work. Management’s conclusion: Disrupt the restaurant experience and eliminate the wait staff. So, while they serve fine food, their customers pick up their own water, order wine at a counter and essentially engage in a pricey version of cafeteria dining.

The Half-Life of Jobs

Travel sites decimated travel agencies. Craigslist crushed newspaper classified advertising and the crucial revenue it produced. Online trading took stockbrokers down a few pegs. Online music sharing gutted the traditional music industry. The list seems endless.


“The half-life of a job is about 50 years. People learned to do new things then, and they will learn new things now.”


Often, such changes result in lower-paying, less stable jobs than the professions that were disrupted, and a larger share of profits tends to be channeled into fewer hands.

The concentration of wealth from other industries into tech and innovation specializations has, generally speaking, resulted in fewer people with outsized buying power; and then there are the rest of us who might enjoy the latest app or website—at least until the disruption they create affects our professions, or the housing markets we’re looking to afford housing in.

Byron Reese, who is the author of the recently published book The Fourth Age: Smart Robots, Conscious Computers and the Future of Humanity, sees this change in the context of epic transitions in human history. There have been key disruptive transformations, he explains, such as when animal power was replaced by steam engines, the advent of the assembly line and the electrification of the United States—all of which triggered a furious evolution of work and labor in remarkably short amounts of time.

“The half-life of a job is about 50 years,” Reese says. “People learned to do new things then, and they will learn new things now.”

Reese is undoubtedly correct in pointing out the almost magical components that tech has introduced into our lives. The industry has also generated unimaginable wealth for groundbreaking companies.

When he talks about us all having Star Trek-like medical tricorders that will tell us everything that is wrong with our bodies, and websites that offer us detailed, top-notch legal advice, or smart kitchen utensils that advise us about how to cook fine meals, it can start to sound like the latest utopian sales pitch in a state famous for promising, but not always delivering on, the establishment of a better world. “When you have technology like this, you get a flowering of humanity,” Reese says.

Seen from such a vantage point, says Reese, who has moved from Northern California to Austin, Texas with his family, “There is no way to wrap my head around this being bad for the Bay Area.”

It may not be bad for the Bay Area, just for many of its longtime residents–who can be forgiven for fearing that the burgeoning tech utopia could be the 21st century’s middle-class dystopia.

Read more of our “Priced Out” series here. Please join Capital & Main’s Facebook group on the cost of living in California to discuss problems and practical solutions. And follow Eric Pape on Twitter @ericpape, and let him know if you have a powerful story about the human impact of the price of  life in the Golden State.


Copyright Capital & Main

Priced Out

Priced Out: The Crushing Cost of Living in California

This week Capital & Main launches an ongoing project focusing on the broken economics of what is, according to one recent MIT analysis, America’s most expensive state.

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In our increasingly gig-driven economy, we have less and less access to affordable homes, health care, paid vacations or even true career paths.


 

There’s an insidious force chipping away at a historic pillar of modern America.

This force is all around us: in the car repairs we put off; the medical visits we delay; the vacations we can’t afford to take; the healthier food we don’t buy; the homes we can’t afford and in the rest of our financial shpilkes, or anxiety. It is the increasing economic fragility of middle-income America.

How else can we explain a housing market that is vacuuming up savings that many of us used to put away for retirement? Today companies frequently distribute profits to shareholders that traditionally funded employee pensions. Beyond that, in the increasingly gig-driven economy, we have less and less access to good and affordable health care, paid vacations, workers comp, job stability or even true career trajectories.


Ten of the nation’s 15 most expensive real estate ZIP codes are in California.


Forget planning for the future, warns Alissa Quart, the author of Squeezed: Why Our Families Can’t Afford America, a book detailing the shame, isolation and other psychological tolls of middle-class decline. “Just surviving, she summarized in a recent interview, “is all most of us are trying to do now.”

This is particularly true in California. We fuel up on some of the most expensive gasoline, spend massively on transportation in general, put out big time for the costs of parenting and pay the nation’s highest real estate costs. California’s median home list price has exceeds $600,000–far surpassing the typical cost of a home in New York state and nearly doubling the national number, according to data from the home-buying site Zillow. And 10 of the nation’s 15 most expensive real estate ZIP codes are in California.


Our long-term slide in purchasing power has made us forget that post-World War II generations could look forward to improving personal finances and security.


The rise in prices explains why the state is also home to five of the 10 major cities with the nation’s lowest percentage of homeowners—statewide rates have dropped by a startling 5.5 percentage points in a dozen years. Things are hardly better for renters; California is home to eight of the 13 worst cities for tenants, according to Forbes.

It wasn’t always this way, but our long-term slide has made us forget that post-World War II generations could look forward to improving personal finances and security. We’ve also forgotten to ask important questions: Why do academics and teachers need to take second jobs driving for Uber or Lyft to cover their basic living costs? How come so many renters and homeowners rush to invite people they’ve never met to stay in their extra rooms via Airbnb? Why do injured people who are underinsured sometimes urge helpful bystanders not to call the ambulance? How is a sharing-economy company able to convince people to rent out their own cars for a little side cash? Many of these things would have been unimaginable a few decades ago.

A political maxim says that a smart politician should never “let a crisis go to waste” because it can be used to galvanize necessary actions that might otherwise be impossible.


Our biggest expenses consume an ever-increasing percentage of typical household incomes, leaving less for what used to be known as our “golden years.”


But first, people need to recognize that the crisis exists. This week Capital & Main launches “Priced Out: The Crushing Cost of Living in California,” an ongoing project focusing on the broken economics of what is, according to one recent MIT analysis, America’s most expensive state. We will dig into the sources of popular economic despair to separate fact from myth, examine how falling purchasing power is affecting working- and middle-class lives, and search for real-world remedies.

This will include an examination of the changing world for laborers who were long able to climb the economic ladder to the middle class. We will explore whether the thriving tech industry really is leaving any room for traditional middle-class workers. We will delve into whether California’s legendary spirit of innovation can help spare middle-income people from decline. And above all, we will look at why the American Dream has fallen short for many of the men and women who fervently believed it in this state.


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A casual look at the economy—official unemployment is at record lows and post-recession economic growth remains solid—makes it easy for people not affected by the longer-term decline to miss it.

But a deeper dive makes the depth of the struggles by tens of millions of hard-working people in the state (and beyond) clear. Our biggest expenses consume an ever-increasing percentage of typical household incomes, leaving less, of anything, for other costs—or what used to be known as our “golden years.”

This has vast implications that we will explore. And while California is hardly alone in its high prices and median incomes that haven’t kept up—as people around the country can attest—a state at the forefront of this crisis is ripe to find solutions capable of resonating across the country.

Read more of our “Priced Out” series here. Join Capital & Main’s Facebook group on the cost of living in California to discuss problems and practical solutions. And follow Eric Pape on Twitter @ericpape.


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Priced Out

My Father and the Betrayal of the American Dream

Co-published by Fast Company
My young father’s blue-collar jobs were his escalator into California’s middle-class. The rising cost of living has put an end to such opportunities.

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Eric Pape

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Charlie Pape. (All photos courtesy of Eric Pape)

There was no stopping men like my father, who began as a full-time school gardener and also worked 20 to 25 hours on weekend side jobs.


Co-published by Fast Company

 

My father had a dream. It wasn’t for Charlie Pape’s three boys to go to college to learn to speak with fancy words he didn’t trust. It was that each of us would buy a truck, load it up with landscaping equipment and tail him around the automotive arteries of Los Angeles, from gardening job to gardening job. “We could be,” he’d say, “Pape & Sons.”

That was to be our way to live the American Dream. But such dreams are often misunderstood. They weren’t really about the picket fence or the single-family home or, in the late 20th century, the swimming pool in Southern California. It was about economic security, quality of life and improvement; knowing that through your hard work you can provide for your own, for your future, and that your kids could look ahead to better times.


Also Read These ‘Priced Out’ Stories


For Charlie Pape this all required a preternaturally hard-work diet. First there was his full-time weekday career. He had started as a gardener for the Los Angeles Unified School District, before graduating up to supervisory roles—initially overseeing other gardeners around the district and then LAUSD’s landscaping. In those positions, he burned through two decades without using any of his sick or vacation time. And then there were the weekends when he would spend an additional 20 to 25 hours toiling on side jobs. That explained his sinewy, oversized forearms and biceps that bulged out of his white T-shirts. There was, it seemed, no stopping men like my father.


The Bargain: If you worked hard, you got ahead. If you worked harder, you might get farther ahead. In California blue-collar workers climbed the economic ladder into middle-class lives.


Why did he work so hard meticulously tending to patches of greenery in our paved-over desert city? It was, he felt, about satisfying his end of a bargain.

The other end of that bargain came from a society and an economy in which, if you worked hard, you got ahead. And if you worked harder, he believed, you might get farther ahead. His late-century California was a place where blue-collar workers spent decades climbing the economic ladder until millions of them were enjoying the fruits of securely middle-class lives.

They were, you might say, living the dream—or working on it.

 

American-built

Our father’s confidence in the America Dream was, in hindsight, touching and a bit odd. He was no dewy-eyed idealist. Despite his impressive muscles, he frequently prepared for the worst; he always kept an ax handle on his truck dashboard.

The author’s father and mother, Charlie and Sheila.

Born in 1941, our father came of age as America was flexing its might as the world’s dominant economic power and the benefits trickled down into his local economy. After high school, in which his only good grades tended to be in physical education and horticulture, he got a job as gardener at Hollywood High.

By the end of the 1960s he was supporting a wife and their three very young sons on a school gardener’s salary. Our family bought (and then quickly sold) three different homes, each more comfortable than the previous one—two in Simi Valley and a third in the San Fernando Valley. That last home—with its fruit trees, large yard and funky circular swimming pool in Tarzana—confirmed our arrival in the middle class of Los Angeles.

The price of such homes has risen exponentially since the 1970s and ’80s, putting them absurdly out of reach for a new generation of gardeners and school-grounds supervisors.


Our old house in Tarzana is calculated to be worth about $1.5 million. Working-class people no longer buy such homes; they maintain them.


My parents bought their starter home in 1964 on Appleton Road, Simi Valley, for $17,000 (about $136,000 in today’s currency) and is now valued by the real estate site Zillow at more than $550,000. The house that we moved to, on Tuttle Avenue a few blocks from there, was bought in 1969 for about $20,000 (adjusted to nearly $139,000 today); according to a Realtor.com estimate, it is worth at least $715,000 these days. And our former American Dream house on Santa Rita Street in Tarzana, purchased in 1974 for $46,000 ($245,457 today), is calculated to now be worth about $1.5 million. Working-class people no longer buy such homes; they maintain them.

According to the Economic Policy Institute’s cost-of-living calculator, the modern version of my dad wouldn’t do so well in the relatively low-cost Simi Valley area. The area is part of the Oxnard-Thousand Oaks-Ventura metro area, where a basket of necessities—that includes the price of fair-market housing, food, childcare, transportation, health care and other core costs—for a family of five is calculated at $11,131 per month. So for a family like ours to attain what the EPI describes as a “modest but adequate standard of living” that is a realistic “measure of economic security in America” in 2017, it would need to earn about $133,600 per year.


By the 1990s, decades of gains for blue-collar workers were being replaced by a decline that has only sped up in the 21st century.


Contrast that with the pay for the latest generation of L.A. school-system gardeners, who earn between $16 and $21 per hour these days. Today’s more common two-income households don’t come close to having the buying power that my father’s income provided in our early years.

The 2017 pay scale for my dad’s best job, as an LAUSD landscaping supervisor, was between $34 and $42 per hour, which would come out to between $71,000 and $87,000 annually, assuming it was for a full-time worker. Throw in the $20,000 or so that someone like my father might gross through his weekend gigs and it becomes clear that he wouldn’t qualify for a loan necessary to buy any of the homes our family bought—and two of those homes are in areas far less expensive than the neighborhoods where he worked.

Even if my father had continued doing all of the same work, he would have earned far less money. The sources of his income haven’t just declined in comparative terms. In his late 40s, an LAUSD shakeup forced him to accept a lower salary and, soon after, drove him into retirement in the early 1990s around the age of 50.

 

The Mirage

After retiring from the schools, my father initially took more gardening jobs. He could be entirely independent, out in the elements, and stay healthy. But increasingly fierce competition for gigs caring for greenery around banks and early tech companies went through a blind-bidding process. Suddenly, he found himself unilaterally lowering his own pay to keep them.


Not only do new hires have a fraction of the buying power of earlier generations, their jobs often come with limited hours that prevent workers from getting any benefits at all.


By the late 1990s decades of gains for such people were being definitively replaced by an unmistakable decline—even for an unstoppable force like my father—as the gap between workers’ incomes and living costs peaked. That gap would broaden further with the arrival of the Great Recession in 2008.

Charlie Pape, Little League coach, with two sons in front row, center.

Even now, a decade later, people in my father’s position haven’t recovered. New school-system hires in gardening and landscaping have far less secure employment agreements. So not only do they have a fraction of the buying power of earlier generations, their jobs are often part-time, which prevents them from accessing any benefits at all.

My father, however, never learned about much of that. After his own material situation began to decline in the 1990s, he was diagnosed with non-Hodgkin lymphoma, a cancer of the lymph system linked to the sort of dangerous chemicals gardeners of his generation frequently used. (I previously wrote about what his experience taught me here.)

One of the hardest things he ever did was to give up his freelance gardening jobs. For a while, unable to disconnect, he’d drive around—or have his second wife drive him when he could no longer walk—to inspect “the jobs” like the supervisor he had long been.


When my own two boys look back, what are the lessons they will remember from their father?


I’d later ask him how they were looking. “Pretty shabby, Pape,” he replied. Even as his own life was crumbling, he was trying to hold up his end of the bargain as best he could.

Following two years of brutal chemotherapy my muscled-up father looked like the iconic cancer “victim.” After baseball star Darryl Strawberry met with Southern California cancer survivors in front of journalists, the photo that appeared in the newspaper was of the ballplayer alongside a large, bald man with sunken eyes and a withering physique (but improbably large forearms). It was my father, who was only in his mid-50s.

Charlie Pape died on June 2, 1999 at the age of 57.

As I tend to my own garden in Southern California’s furnace-like summer heat, I’m inundated with memories of gardening tips my father surely never dreamed I would remember. And I look at my own two young sons and wonder what they will retain, especially since I’m so much easier on them than our dad was on my brothers and me.

When they look back, what are the lessons my boys will remember from their father?

Back in the 1970s, when my brother and I helped Charlie at his biggest gig—a Great Western Bank on Topanga Canyon Boulevard with an incongruous array of flora around it—the heat would get so oppressive I would put down my reduced-size rake and seek shelter in the truck loaded with tools and an AM radio. From there, the sun-blasted blacktop sometimes seemed to smolder, creating a visual distortion.

And eventually, my father would emerge from that heated haze, knocking food wrappings and cigarette butts into a pickup pan like some sort of urban Angeleno hockey star.

In such moments—with his blue jeans, sweated-out T-shirt and unstoppable stamina—he embodied Southern California’s working-class heroes as he appeared in that mirage-like shimmer.

In the decades since, it has become clear that his dream was truly just a mirage.


Read more of our “Priced Out” series here. Please join Capital & Main’s Facebook group on the cost of living in California to discuss problems and practical solutions.

And follow Eric Pape on Twitter @ericpape, and let him know if you have a powerful story about the human impact of high prices in the Golden State.


Copyright Capital & Main

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Priced Out

Infographic: The Bay Area’s Vanishing Affordable Housing

Read Eric Pape’s “Middle Class 2.0” — part of our Priced Out series about the economic challenges facing California’s middle class.

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Alamo Square photo by John O'Neill

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