Vacancy rates and sales tax data suggest an outmigration of tens of thousands of San Francisco residents
Those who left cite remote work as the main catalyst, but many are considering moving back to the City in 2021
The Controller’s Office estimates that remote work will reduce payroll tax revenue by 10.2%, and gross receipts tax revenue by 7.7%, in fiscal 2020-2021
Seven months into COVID-19, a snapshot is emerging of a diminished San Francisco with a smaller population, fewer jobs and a weakened tax base.
Thousands of residents have likely left San Francisco since March, vacancy data suggests. Rental vacancies leapt to 7.8% from 3.4% between March 2020 and July 2020, while the number of active home listings more than doubled over the same period. Given San Francisco’s average household size of 2.3 people, those numbers imply an outmigration of roughly 30,000 residents — but since those data points don’t account for subleases or roommates, the true number may be considerably higher.
“My job went remote, so I decided to get out of my apartment, throw my things in storage, and head back to Michigan,” said Brian Clark, a 30-year-old engineer who said he’s undecided about returning to San Francisco. “I’m going to see how fire season plays out — this year has been horrendous.”
Among those who left, most cite a change in work circumstances — either a remote work policy or a job loss — as the main catalyst.
Led by cuts in hospitality, retail and other hard-hit industries, San Francisco county’s unemployment rate swelled to 8.8% in August, while the number of remote-first positions has ballooned. Several of San Francisco’s biggest employers -- including Salesforce, Uber and Twitter -- have extended work-from-home allowances until at least mid-2021, or in some cases indefinitely.
“Everyone is reevaluating whether they want to be in the city,” added Michael Yelverton of Tiedemann Advisors, a financial planning firm advising clients in San Francisco. “It’s more of an urban versus suburban question: If I can work from wherever, where do I want to be?”
Employers are grappling with similar uncertainty: Far fewer businesses are committing to a physical presence in the City, with San Francisco office owners leasing just 700,000 square feet of space in the third quarter, compared to 3.6 million in the same period last year. Others are slashing their local footprint, helping to push office vacancies above 14% in the third quarter of 2020, according to Cushman and Wakefield.
The rise of remote work adds an extra layer of risk to the City’s fiscal outlook.
In a report published last week, the City’s Economic Recovery Task Force cited remote work as a threat to the City’s long-term competitiveness, writing that it makes a “major difference” to the local economic recovery whether or not office workers choose to relocate permanently.
Business taxes account for roughly 25% of San Francisco’s local tax revenue in a typical year. The sharp rise in remote work, however, is expected to take a big chunk out of payroll taxes, which are calculated based on the number of employees physically working in the City. Fewer local employees also reduce gross receipts taxes for certain categories of businesses, according to the Controller’s Office.
For the current fiscal year, the Controller estimated that remote work will slash San Francisco’s payroll tax revenue by 10.2% and gross receipts revenue by 7.7%. However, those projections rely on an assumption that only half of office workers that would normally be commuting into San Francisco are remote, an assumption that may prove too optimistic. Meanwhile, sales tax revenue plunged 43% between April and June, and hotel taxes — which make up around 10% of the City’s local revenue in a typical year — are expected to fall 63% in the current fiscal year, which ends in June 2021.
As for the erstwhile San Francisans, many are weighing a range of variables in deciding when, or if, to move back to the City.
“It comes down to the COVID environment, the social scene, the weather and the fires,” said Nate Levin, a 34-year-old product manager and musician who gave up his room in San Francisco in favor of a large, shared home in Grass Valley. “Out here I have a 400-square-foot room, an office, trees and views. So, I’m giving it a shot for a bit.”
Levin, along with others interviewed for this article, are open to returning to the City in 2021 given the right conditions: An affordable living situation, social and creative opportunities, and a healthy environment. Of course, work requirements — whether employees are expected or incentivized to meet in-person in the future— may be the biggest factor.
With rents falling and interest rates extremely low, San Francisco may be well positioned for a comeback starting in 2021 if two things fall into place: An end to the pandemic, and more government aid to shore up businesses and individuals currently on the brink. In the recent Economic Recovery Task Force report, among the top policy recommendations was to lobby federal and state governments for commercial and residential rent assistance, grants for hard-hit businesses, job training programs and other initiatives.
“It’s a very accommodative overall environment right now,” added Yelverton. “The onus is on Congress and the government to push it forward.”