Google Bus – is Google to blame for rising rents in San Francisco?

In early 2013, Google started running a free shuttle service for its employees, as well as the employees of other tech giants such as Apple and Facebook. This service, dubbed ‘Google Bus’, stops at public bus stops throughout the San Francisco area and brings them into the Silicon Valley. Google Bus has over 350 buses, carrying around 35,000 commuters per day. With the service taking thousands of cars off the road, reducing congestion and pollution, reducing burden on the existing public transport network and a corporation taking responsibly for the consequences of its actions, this all sounds like a great outcome for the local community.

Not according to many residents of San Francisco who have taken to the streets to protest against the service.  Over the past year, there has been a groundswell of discontent that has seen protestors disrupt services, harass tech commuters and even in some cases damage property. They have even attempted to sue the San Francisco government for allowing Google Bus to use public bus stops without, in their opinion, proper assessment of its potential impacts.

Behind this dispute are concerns about the economic changes occurring in many neighbourhoods across the city. Previously, the cost of fuel, parking and the stress of actually having to drive made these areas undesirable for many techies. Google Bus has changed this equation, and encouraged wealthy techies to move into what were poor and middle class neighbourhoods.

Techies moving into the areas serviced by Google Bus creates a demand for housing. These areas are already developed, urban, communities so the effect of the increased demand is to raise the price, and rents, of existing housing. Indeed, concerned citizens have argued that rents near the bus stops have increased up to 30% since the program’s inception. This in turn has forced many renters to move, some of them long-time residents that have resided there for decades.

The increased rents are also causing the character of the community to change with the funky family-owned shops that once defined these areas closing because the owners cannot afford the rents, and once run-down dwellings being refurbished.

So how should policy makers respond to these concerns?

Firstly, the legitimate concerns of the protestors need to be acknowledged. The changes are having an impact on rents and there will be impacts on residents, particularly those poorer residents who may rely on being close to services.

At the same time though, authorities need to recognise that their role is not to stop change, and need to recognise that the underlying issue is the strong demand for housing not Google bus.

Clearly, techies want to live in San Francisco rather than in Silicon Valley (despite the nearly hour long commute). These workers have a right to choose where they want to live, just like any other citizens,

Stopping Google bus, is not likely to solve the issue. Markets are very good at providing innovative solutions to issues where there is demand. Think of the sudden rise of Uber and how it, or something similar, could easily fill the void left if Google buses were taken off the road. The advantage of Google bus is that it creates less pollution and congestion than other transport options, and short of pricing these externalities, taking the buses off the road may only make things worse.

Another option that has been used across America is the introduction of rent controls. Such controls are already in place in some parts of San Francisco and many other American cities. Rent controls certainly prevent low income renters from being driven from their homes but there are some unintended consequences that need to be considered. By capping rents, the government distorts the signals that rents send to landlords. While intuitively appealing, rent controls have been shown to create housing shortages, discourage adequate maintenance, have been linked to the creation of ghetto like conditions and may ultimately hurt the very residents they were intended to assist.

So if blocking Google Bus or rent controls are not the answer than what is? For a start, regulators could look to the market to provide a solution.

In the long term, above average rents incentivises the development of more housing. Why? When landlords build a new house they make an investment. They expect the rents they receive for their property to be enough to justify the initial capital cost which compensates the landlords for building the house. When the rents are higher this creates a strong incentive to produce new homes. In an already developed area, like San Francisco, this will most likely lead to higher density housing. As more homes are available to meet the existing demand, the rents and prices of these homes will fall until the returns on developing new homes are similar to what they are in other parts of the country.

As we know markets don’t always provide these solutions and policy makers need to take a close look at the impediments to new dwelling construction. A good place to start would be to have a look at removing regulations which act as a disincentive for the development of new housing. There are numerous zoning, character and environmental restrictions that increase the construction price of new housing. Removing these would help lower the cost of housing and help create more housing for displaced residents to move into.

Authorities also need to carefully consider the wider implications when they respond to local concerns about new developments. Each development that is rejected results in fewer housing options for local residents and increased housing costs for those who can least afford it.

This is where Government can play a role in shaping public opinion. Most often objections to development are pushed by a vocal minority who are directly impacted. The costs of decisions to stop development, however, will be shared across a much larger population (and perhaps across generations) who are often unaware of these costs. If the authorities in San Francisco were more proactive in educating residents about the consequences of restricting development, perhaps residents wouldn’t be so opposed to change.

Authorities could also think about promoting some of the benefits that the changes are bringing. The problems of the low and middle class don’t come from a lack of housing but a lack of income. Incomes, particular for poorer residents, are related to employment opportunities, and employment opportunities are typically created where money is being spent on construction, renovations and entertainment. All things that wealthy techies are likely to bring to an area.

Issues relating to population growth and housing affordability are not unique to San Francisco. While Google buses are unlikely to arrive at our shores anytime soon, the underlying issue, rising demand for housing in inner urban areas, is present in most capital cities across the nation.

Perhaps when future developments are planned, concerned citizens and policy makers should give a thought to the full consequences of preventing their approval.