June 23, 2022 | Tags: california, Corruption, REASON, Texas
It's easy to understand why people moved to California—and it's just as easy to understand why they are now leaving.
In the 1950s, planned developments of sprawling single-family ranch houses sprung up throughout California. Postwar abundance meant normal people could have garages and swimming pools. Real estate magnates set their sights on creating full towns, with all the modern amenities, out of sparsely populated ranchland. Jobs, meanwhile, were abundant—defense, entertainment, infrastructure, service, and engineering, specifically semiconductors.
This was the dream of postwar California: sunny, sprawling, full of opportunity, and, if not quite cheap, within the reach of the comfortably employed middle class. That was true even in booming urban locales like San Francisco. In 1997, for example, when the city was still a quite-desirable major metropolitan hub, the inflation-adjusted median home price was $508,000.
In the quarter-century since, that dream has become increasingly out of reach. The median home value in San Francisco in 2022 is above $1.5 million, according to the Zillow Home Value Index, which shows home values rising by more than 10 percent in the past year alone. In nearby San Jose, Redfin reports a median home price of $1.45 million—but home values have risen by a staggering 24 percent in the last year. Today's Bay Area is simply unaffordable for most people, in part because California regulations hinder new construction and in part because natural geographical constraints reduce the total amount of buildable space; San Francisco has a huge housing supply shortage that shows no signs of being remedied soon.
Pair this with complaints that the city has failed to handle its homelessness problem, leading to open-air drug scenes and massive tent encampments in neighborhoods like the Tenderloin. One in every 100 San Franciscans is homeless, and California is a national outlier in terms of what proportion of the homeless population is actively "unsheltered," as in, sleeping on the streets or under highway overpasses. In San Francisco, 73 percent of the city's homeless population is considered unsheltered. That's not normal, even for a big city: In New York City, the figure is about 3 percent.
And then there was the pandemic, which made many big tech offices obsolete: Twitter, Yelp, and Airbnb attempted to sublease their expensive Bay Area office spaces. Pinterest paid almost $90 million in the third quarter of 2020 to break the lease of their almost 500,000-square-foot office space. For many workers, the value of living in San Francisco dropped. Why pay a premium to live near an office you aren't going to?
Finally, there was the broader sense, especially among high-value tech workers, that San Francisco and its neighbors were uninterested and unresponsive, focused only on extracting from their most productive citizens in the form of high taxes, which fund poor city services. In the last few years, many have simply grown tired of paying exorbitant taxes for the privilege of living in California—one that now bestows little in return.
Hence the Golden State exodus. In 2021, for the first time ever, California lost a congressional seat. The state didn't technically lose population, but it didn't have the same growth rate as the rest of the country.
Booming cities like Miami, Florida, and Austin, Texas, have been the beneficiaries of this exodus. Housing costs play an outsized role in migration patterns: San Francisco's price per square foot hovered around $924 in January 2022. In Miami, it's about $300 per square foot, and in Austin, it's about $330 per square foot.
But the shift also owes something to responsive governance. Leaders of other cities have actively courted the movers. In December 2020, venture capitalist Delian Asparouhov tweeted "ok guys hear me out, what if we move silicon valley to miami." Miami Mayor Francis Suarez responded promptly, "How can I help?"
Yet as Bay Area tech workers depart, it remains an open question whether those new pastures will truly be greener. The city of Austin has faced rising housing costs, stemming in part from restrictions on development. Miami has struggled with corruption and policing problems. San Francisco's urban competitors are cheaper, for now, but there are already worrying signs that the cities luring tech's highly mobile, highly desirable workers are already poised to repeat many of the same mistakes that drove so many Californians away.
Mess With Texas?
Some Golden State emigrés set their sights on Texas, the land that promises no state income tax, some of the lowest corporate tax rates in the country, and plentiful land for building headquarters and factories.
At the beginning of the pandemic, Tesla built a factory on the outskirts of Austin. Founder Elon Musk now flits back and forth between Austin and Boca Chica, a rural South Texas town he's successfully colonized for SpaceX purposes. Venture capitalist Luke Nosek, a co-founder of Paypal and member of SpaceX's board, had moved to the Austin area years prior. Tech-adjacent writers and thinkers and podcasters, like Tim Ferriss, Ryan Holiday, and Joe Rogan, took up residence too, some of them before it was trendy to do so.
Joe Lonsdale was one of many tech-industry founders who moved his firm, 8VC, and most of its employees to Austin soon after. 8VC has funded the work management platform Asana, the telehealth company Hims, and the virtual reality company Oculus. Lonsdale is also one of the co-founders of Palantir, the oft-criticized company that creates software that sifts through and makes sense of complex data sets, which has controversially been used by police departments, the military, and Immigration and Customs Enforcement.
"Austin has a few advantages in housing; first of all, it started from a much lower price base," says Lonsdale. "Geographically, Austin has a lot more ability to expand supply." There's very little land preservation in Austin compared to San Francisco (which Lonsdale says may not be a good thing, exactly; both extremes are perhaps undesirable). "There's no CEQA. There's not, like, crazy things," he adds, referring to the California Environmental Quality Act passed in 1970.
At the time of its passage, CEQA was pitched as a way to protect the state's natural preserves from state-backed building projects by requiring extensive studies of environmental impact. But it eventually became a major legal blockade for private development, since it empowered any individual or interest group, including unions and environmental activists, to demand expensive, time-consuming environmental reviews, often with implicit demands for concessions from the developers. This, combined with real geographical constraints in cities like San Francisco, has contributed to California's high and rising housing costs.
But just because Austin doesn't have to deal with CEQA or land boundaries like San Francisco's doesn't mean it's an easy place to build. If anything, it's been becoming more difficult for decades.
A common refrain among both urban policy wonks and ordinary residents is that Austin is like San Francisco in the '90s. Those who migrated to the city and bought early stand to gain from the soaring housing prices, but many others are getting priced out or pushed farther from the city center. Road congestion is unworkable, and the city has expanded north to south, meaning huge arteries like Mopac and Interstate 35 maintain miserable stand-stills between the hours of 3 and 7 p.m. Austin property values are currently nowhere near San Francisco's, but rising fast, and it's not hard to imagine where this path leads.
So in 2012, Austin city officials saw the writing on the wall and proactively tried to remedy these problems by moving toward a zoning code rewrite. The 30-year-old code had outlasted its usefulness, and with massive population growth, city planners needed to allow for much more density.
The city's newly proposed zoning code was dubbed CodeNEXT, as part of a forward-looking urban revitalization plan, Imagine Austin. The new code aimed to reduce the strict separations between Austin's residential and commercial corridors, allowing for more mixed-use buildings and more housing overall.
It would've scrapped single-family zoning restrictions in many areas, allowing for duplexes, triplexes, fourplexes, and apartment buildings to be built in their stead; it would've allowed for urban in-fill instead of forcing newcomers to gravitate toward far-flung suburbs; it would've reduced or eliminated minimum parking requirements in some places too. It wasn't exactly an urbanist's dream—some criticized it for not going far enough with regard to density—but it was a reasonable step toward that ideal.
The proposal was far too good and sensible to be true, or at least to be popular. "Plans to add more Missing Middle housing (like townhouses, bungalows, and tri- and fourplexes) became more and more limited as draft iterations went on," Strong Towns' Aubrey Byron writes of CodeNEXT. "Another urbanist goal—to remove parking requirements—was also thwarted."
Austin has a car-reliant suburban development pattern despite its size, argues Daniel Herriges, also at Strong Towns. So growth, which leads to congestion, leads to "dispersed benefits, but concentrated harms" for existing residents. Opposition to new development takes hold; the NIMBYs, responding to incentives, come out of the woodwork.
Anti-developer sentiment and concerns about neighborhood character changing took root.
In my neighborhood, Holly, which is about two miles east of downtown, signs popped up all over the place urging residents to oppose the zoning rewrite, stoking fears that massive high-rise apartment buildings could dwarf our Craftsman-style cottages.
"Through its three revisions and the ensuing waves of protest, the CodeNEXT team was forced to make changes that compromised the plan's ability to deliver on its promises in an attempt to satisfy multiple constituencies," writes Herriges.
By 2018, the project was dead in the water, having been met with fierce opposition primarily from neighborhood preservationists and homeowners, who had seen their homes double in price over the last five or 10 years.
Instead of spurring growth by loosening restrictions on development, Austin chose to subsidize cheaper housing, breaking ground on a paltry 1,755 new units of affordable housing and acquiring an additional 1,197 over the span of 2020–21. But no new land development code has been agreed upon, and the city's real estate developers have grown increasingly restless, angered by long permitting times and onerous inspection and fee requirements.
"You can't subsidize your way out of housing affordability," former City Councilwoman Ellen Troxclair, who served during the zoning wars, tells me, noting that's the approach Austin's current leaders have chosen while also hesitating to come up with zoning solutions.
Land development and zoning necessitate nuanced conversations about the best way to effectively manage what Troxclair calls "inevitable growth." But without clear communication and leadership from city officials, "residents were left to fear the worst" about what zoning code reform would do to their home values and residential areas. "The people who paid the price for it are low- and middle-income people who have now been priced out of their homes," since density is not the city of Austin's objective.
Still, developers are working within the political constraints they've been handed without waiting for code reforms. They may not be building dense, urban-neighborhood middle-class housing as many urbanists would like, but they are experimenting with smaller micro-units—355-square-foot studios and 486-square-foot one-bedrooms, the likes of which you'd normally find in Manhattan—on the East side and with super-tall skyscrapers downtown. In my neighborhood, the last decade has seen plots divided into "A" and "B" units that form condominium associations with each other. This might seem absurd, but it's a useful legal workaround that allows an area proximate to downtown to get the desired density without having to engage in as many political squabbles.
The developer workarounds have allowed the city to keep growing. But the policy environment has made it more difficult than necessary.
"I cannot tell you how many times I heard Mayor [Steve] Adler say we don't want to become the next San Francisco," Troxclair says. "But the steps that they took and the decisions that they made, they have absolutely followed in the city of San Francisco's footsteps."
Become a Florida Man?
Like Texas, Florida holds the allure of no state income tax—something that clearly influences the decision making of venture capitalists. Recent migrants include Founders Fund partner Keith Rabois, cryptocurrency bull Anthony Pompliano, investor Dan Sundheim, and private equity financier Antonio Gracias, who serves on the board of SpaceX and, up until recently, Tesla. Companies like TikTok, Microsoft, Apple, and Spotify are all either creating new presences in Florida or massively expanding their existing footprints. The South Florida aerospace tech scene is booming too. Varda Space Industries, which aims to build a zero-gravity manufacturing facility in orbit around the planet, is hoping to move operations from Los Angeles to Miami sometime within the next 18 months.
Some of this boom can be attributed to Miami's enterprising mayor, Francis Suarez, who has tried to woo California's tech class to the city. After his Twitter conversation with Asparouhov, the mayor bought billboards in the Bay Area that read, "Thinking of moving to Miami? DM me"—jokingly suggesting that dissatisfied residents should hit him up.
Suarez is clearly keen to sell his city. But governance is another issue.
Asparouhov, who actually did end up moving to Miami following his exchange with Suarez (and a fruitful visit), concedes that the mayor isn't really the one responsible, per se, for the burgeoning tech scene.
"I'd attribute it all to the Cubans fleeing Fidel Castro having very similar values to hypercapitalist technology investors, founders, executives. That completely by-chance overlap is like 95 percent of the reason why this is showing so much success," Asparouhov tells me.
Indeed, Suarez's job as mayor is just a part-time role, and the Miami-Dade County mayor, who makes decisions affecting a much greater population, has much more power. For governance of the limited area deemed Miami proper, five nonpartisan city commissioners pass ordinances and adopt regulations, working in conjunction with Suarez. "The Miami mayorship," Asparouhov says, "doesn't have significant policy or political power to influence how the city itself actually runs."
And unfortunately, the way the city actually runs is mostly through dysfunction and corruption that may ultimately put a ceiling on the city's growth and allure. If Miami goes the way of San Francisco, even just partially, it will be because of failures of urban governance.
Take the saga of Art Acevedo, the Cuban-American police chief Suarez poached from Houston in March 2021. The Department of Justice (DOJ) had just ended its oversight of the Miami Police Department (MPD) following a 2016 string of police killings when Acevedo made the move. The DOJ had been investigating the MPD's excessive use of force and working to improve its handling of wrongful police conduct. After the city cycled through six different police chiefs over the course of 11 years, hopes were high that Acevedo, who Suarez described as "the Tom Brady or the Michael Jordan of police chiefs" to The Miami Herald, would be the one to help the city reform police department practices.
Instead, Acevedo canned and demoted several high-ranking officers and tried to change things up so that MPD would be tasked with investigating police shootings rather than the Florida Department of Law Enforcement. He angered city commissioners, comparing them to Cuban dictators. He accidentally—or so he claims—posed for a photo with a member of the Proud Boys. For all this and more, Acevedo was fired from his position in October of the same year. And that was when the real drama started.
Acevedo sent a memo around that same time alleging that city commissioners had been tampering with investigations into internal affairs. In it, "Acevedo accused Miami Commissioners Joe Carollo, Manolo Reyes and Alex Diaz de la Portilla of abusing their office, specifically of using the code enforcement department, to attack their political enemies and critics," reported South Florida watchdog outlet Political Cortadito.
Acevedo alleged the commissioners interfered with his efforts to reform MPD and frequently used the police department to target and harass certain businesses. The Miami-Dade State Attorney's office, to which Acevedo sent a copy of his memo, opened up an investigation into the city commissions two months later, in December 2021. But investigations have been stymied by the discovery that "one of the state attorney's insiders is apparently the brother of someone who could be a material witness to the corruption," according to Political Cortadito.
It's a Russian nesting doll of alleged corruption, with Acevedo standing accused of bad practices, then him accusing city commissioners of abusing their station to attack political enemies, then the very people sent to investigate said city commissioners finding conflicts of interest that impede their own ability to investigate.
Coincidentally, December 2021 was the same month that San Francisco's former Director of Public Works Mohammed Nuru pleaded guilty to accepting bribes and kickbacks in an almost two-year federal corruption case that elucidated problems within city governance there. The probe is ongoing, and a dozen other San Francisco city government officials either have been or may soon be charged with corruption-related crimes.
Miami and San Francisco are by no means the only two major American cities that get embroiled in corruption scandals filled with self-dealing bad actors who steal funds, dole out special favors for people they know, or attempt to skirt the consequences of their actions. This is an all-too-common tale. But numerous sources I spoke with pointed to Miami's old-boy network that can lend itself to decision making based on patronage instead of prudent policy.
Many of the tech guys "see Miami for the glitz and glamor…which is historically how it's been sold, but there's a lot of dysfunction here," says Joshua Ceballos, a reporter for the Miami New Times. "Things take forever in government unless you grease the wheels or know somebody who knows somebody."
Miami-Dade governance is all about "connections and dynasties," Ceballos says, noting that developers wield a ton of power that can lead to tensions with long-time residents, especially as housing prices rise.
As for Suarez, "you've got to respect his ability to draw in these people with this promise of what Miami could be," says Ceballos, but focusing too much on this promise shows people are "divorced from reality" in terms of actually understanding how the city is run.
Though Suarez's bold energy has been heralded as a breath of fresh air, there are surely ways the mayor could've gotten in front of some of these problems. For example, Acevedo's track record in Houston provided clear signs of the sort of troubles he would bring to Miami. While in Texas, the police chief repeatedly defended corrupt cops, including a narcotics officer who made up a drug deal in order to excuse a botched raid that killed a middle-aged couple. Acevedo also rejected the idea that there were "systemic" problems in the Houston Police Department's Narcotics Division.
Suarez is also at times perhaps too enchanted by the tech crowd he's trying to lure. When Musk proposed in January 2021, via Twitter, a Boring Company-built underground tunnel to alleviate South Florida's traffic problems, Suarez invited him to sit down and talk about it. Weeks later, they did.
"It would be wonderful if the federal government would involve itself in this project," Suarez told Bloomberg Radio in March 2021, adding that he'd be approaching Transportation Secretary Pete Buttigieg about the tunnel. It's unclear whether Suarez favors subsidies or incentives to lure Boring Company builders, but that's certainly the implication. But Suarez's power is constrained here too: Miami-Dade County government, not the city of Miami, has jurisdiction over the roads.
And when it comes to housing and infrastructure—two areas where competent city governance really does matter, and can really affect locals' quality of life—Miami falls short, sometimes in catastrophic ways. The most prominent recent example is, of course, the Surfside tower collapse on June 24 of last year, which killed 98 residents and left search-and-rescue teams sorting through the rubble for weeks. In 2018, engineers had warned the building's management about structural problems involving cracking and crumbling of the concrete parking garage located underneath the building, as well as "major structural damage" worth fixing; the needed repairs were quoted to cost $15 million, a bid that the tower's condo association had sat on for 18 months.
And right around the time of the condo tower's collapse, the building was slated to go through Miami Dade County's 40-year recertification process, important especially due to the fact that water and salt air can erode buildings quickly in this part of the country. But flash back to 1981, when the tower was first built, and the developers who worked on the project (who have long since passed away) stood accused of successfully bribing local permitting officials to hurry the project along. Nathan Reiber, one of the lawyer developers behind the project, had not only been rewarded in permits for his political meddlings, but in fact received the keys to the city upon the tower's completion, per his obituary—the diametric opposite of a slap on the wrist, or any sort of legal consequences, which would have been a more appropriate way of handling such malfeasance.
Of course, Miami has gotten some housing policy right in ways that Austin and San Francisco haven't. In 2016, when Barbara Jordan, former Miami-Dade County commissioner, proposed an ordinance that would've required developers to set aside 10 percent of the housing in properties with over 20 total units, wealthy municipalities lodged fierce resistance. Jordan's proposal, which would've needlessly tampered with markets, was defeated, but not really due to some strain of principled free market ideology. Rather, the project "didn't provide enough incentives to developers," reported the Miami New Times, and was repeatedly portrayed by local politicians and in the press as rich residents fighting a policy that would've helped the poor—unintended consequences of tampering with housing markets be damned.
But many cities enact with counterproductive housing policies and fail to stamp out corrupt actors. Miami, at least, has new blood, both in Suarez and in the types he's attracted.
One might think of Miami as a startup at its early stage. "December 2020 was like Miami's seed round," says Asparouhov. "Our sort of series A was like March/April 2021….Maybe we're gearing up for a series B this year." He adds that "if you look at sort of the capital base that is here, it is quite, quite large," pointing to the "New York escapees, hedge fund types."
In terms of weaknesses, Miami lacks good computer science programs like those of the Bay Area, which are "pumping out software engineers by the dozen." Thus, "recruiting still largely means importing for executive and engineering and product positions," Asparouhov says. Others have said the same. "It's hard to find a company that grew to be worth more than $100 billion that wasn't started within a bike ride of a world-class engineering department," one source described as a "Florida expat" told Intelligencer's Benjamin Wallace.
Also, if you move to Miami to be an engineer, "there's more risk associated with it" because there isn't an "unlimited set of companies for you to go to if that one fails." Asparouhov also laments that, at present, "there isn't continuous generation of next-generation founders."
In some ways, San Francisco remains a strong driver of innovation: Lonsdale points to its preeminence in deep tech stuff, as well as open-source databases and protocols. There's evolution in biology still happening there, and schools like Stanford University and the University of California, Berkeley still generate top talent. Maybe the tech scenes that exist in different cities will become more differentiated, with South Florida serving as fertile ground for crypto and space and Austin remaining strong for prospecting engineering and software sales talent, plus an emerging SpaceX scene on the city's outskirts; early signs indicate that's already the case.
But it's not just that Miami and Austin are competing with California. They're also competing with each other and with every other small- to mid-sized city that a promising young engineer could choose to live in and work from.
More niches drawing different types of talent might spring from the seemingly endless well of options. Or maybe Miami and Austin will savagely go to the mat, Miami the hot new aerospace and crypto titan infused with New York and San Francisco cash; Austin, the more established, grown-up land where large tech corporations have long staked out spaces for second-headquarters, both helped and hindered by the perennial truth that the "weird" city has less sex appeal.
Asparouhov, who points to the rate of growth of his new city as a reason for bullishness, flashes a grin at me, semi-antagonistically adding, "I don't think across any of these dimensions, Austin wins out on, really, anything."
Maybe he's right. But the competition between the two cities, and all the other smaller Bay Area spin-offs, could be something of an inoculating force against bad governance. Some of San Francisco's problems may have been born of the fact that city leaders thought they had a kind of geographic monopoly. "What are you gonna do, NOT live in the vicinity of San Francisco?" they dared talented young coders, realizing they'd get some amount of acquiescence, for some time.
But now they've made the city less pleasant to live in by mishandling homelessness and street crime, restricting housing supply, and instituting overly strict COVID lockdowns and mandates that lingered too long at the same moment that workers realized they had more freedom and leverage than ever before. The tech migration has acted as a referendum on urban governance that takes innovators and wealth-generators for granted.
Both things could be true at once: that the California tech dream is dead and that attempts to replicate what Silicon Valley once was will turn out futile. It could be the case that scrappy startups of young engineers in hoodies coding out of garages will no longer exist the way they used to—all in the same ultracompetitive hub, tons of new projects propagating at once.
Agglomeration effects, or the clustering of industry leading to better job matching and boosted productivity, still matter—and more so to younger people looking to live in urban areas at the start of their careers.
But going forward, entrepreneurs will have the ability to create new ventures remotely, assembling teams in disparate locations in a way that Silicon Valley at its genesis just couldn't be structured. Seemingly secondary cities with lower tax burdens and superior governance might end up with some advantages. The next Google or Amazon might start in Austin or Miami, but it also might spring up in Nashville or Tucson or Pittsburgh—or rely on talent from a wide array of cities rather than a single metro area. Or, investors might only take pitches from people who demonstrate their seriousness by congregating together, in-person, foisting their specifications and conditions on those they invest in, as is their prerogative.
The pandemic cemented remote work as a permanent option in almost all industries, making living and working more distributed than ever before. Agglomeration effects will probably still matter for a long time, and venture capitalists may stipulate that further. But they might just be less important than in the past. And though the tech world's new homes do, in some ways, threaten to be wrecked by bad governance, they are by and large much better, and better at self-correcting, than the old sclerotic mess left behind in California.