What if San Francisco never pulls out of its ‘doom loop’?

Just after lunchtime on a sunny day in late November, Senna Matkovic passed out and turned blue. The 10-month-old had been playing with his twin brother in the grass at Moscone Park in a quiet enclave of San Francisco. Panicking that he was choking on something she couldn’t see, his nanny called 911. A fire engine and ambulance arrived within minutes. On the ground near the slide and the swings, a paramedic undid the tiny buttons on Senna’s shirt and wired his chest to a heart monitor and put a mask over his mouth to keep him breathing. But the toddler wasn’t coming to. Senna’s pupils were constricted and, when his eyes rolled back, the paramedic decided to administer naloxone, a nasal spray that reverses opioid overdoses. Senna woke up instantly.

“If we’d had any time at all, I’d have googled whether it’s safe to give it to a baby,” Senna’s father, Ivan, recalled. He’d rushed to the park from his home a few blocks away to find uniformed workers surrounding his child. A toxicology report later revealed Senna accidentally ingested fentanyl, an opioid that is cheaper and deadlier than heroin. The narrow rescue hinged entirely on the familiarity of San Francisco’s emergency services with a raging epidemic that has meant fentanyl overdoses are now so common that the city has expanded distribution of reversal kits to libraries, entertainment venues, churches and schools.

Matkovic, 36, grew up in the Bay Area and moved to San Francisco for college and to launch a tech platform for the retail industry, where his wife, Kerina, also works. As the start-up took off, they opened an office in Dogpatch, on the eastern side of the city, and moved into a house big enough for their growing family in the Marina, a pricey neighbourhood where pastel-coloured terrace houses look over the Golden Gate. They were two more in a long line of entrepreneurs who turned the city into the centre of the tech world and home to some of the wealthiest people and companies on the planet.

Their son’s accidental overdose became a new low in San Francisco’s metastasising crisis. In recent years, drug cartels have flooded US cities with fentanyl to meet demand for opioids created by rampant overprescription. On the streets of San Francisco, a dose costs $8 and its effects last barely 30 minutes, trapping addicts in a cycle of quick highs followed by hours of painful withdrawals as they hunt for another hit. The synthetic drug’s strength means that as little as 2mg can kill users. San Francisco has the second-highest rate of drug deaths of any city in the country after Philadelphia; almost twice as many people here — about 2,000 — have died from overdoses than from Covid-19 since 2020.

© Illustration by Justin Metz

But San Francisco’s problems go far beyond drugs. The Bay Area is home to four of the 10 most valuable companies in the world — Apple, Alphabet, Nvidia and Meta — titanic producers of wealth, but a staggering one per cent of the city’s population is homeless, compared with less than 0.2 per cent across the US. The gulf between rich and poor — and white and black — is among the largest in America. House prices and rents soared to among the highest in the US during the last tech boom. Since the pandemic, tech companies have embraced remote working, laid off staff and slashed office space, leaving almost a third of the city’s commercial real estate vacant. In other words, houses are more expensive and scarcer, and offices are cheap and empty. Teachers and nurses can’t afford to live in San Francisco, and tech workers see fewer reasons to. 

There is a growing sense, too, that the city’s progressive political class has failed its citizens. Violent attacks in wealthy neighbourhoods, including the fatal stabbing of Cash App founder Bob Lee and a burglary at the home of former House Speaker Nancy Pelosi which left her husband in hospital with a fractured skull, were interpreted as symbols of pervasive lawlessness. (The truth of both cases turned out to be more complicated than it at first appeared.) Then there was the bizarre case of Don Carmignani, the former fire commissioner, who was hospitalised last month after a homeless man assaulted him with a metal pipe; Carmignani’s attacker was released from jail when CCTV footage emerged that appeared to show the ex-official attacking numerous homeless people with bear mace, unprovoked. 

The number of odious incidents like these is small, but each contributes to the city’s growing national reputation for severe urban decay. Online discourse about San Francisco’s “doom loop”, a downward economic and social spiral that becomes irreversible, feels less like hyperbole by the day. Even for a city that has always managed to rebuild after flattening financial and geological shocks, San Francisco — emptier, deadlier, more politically dysfunctional — seems closer to the brink than ever.

Matkovic was recounting the traumatic events of last November from his home in the Marina. “Freak accident or not, the only reason this happened is because there’s more drugs,” he said. (His son has fully recovered.) “The city always had a bit of an underlying unsafe element, but it was isolated. If you stayed away from it, you were pretty much OK.” As he spoke, he watched out his window as a homeless person clutching a glass pipe rifled through his trash cans. “It has spread out,” Matkovic continued. “It feels like the probability of something going sideways here is higher.”

The fog is lying low over the Tenderloin one Saturday morning in April, as Adisa begins his daily patrol. He is six-feet tall, with a diamond stud in his nose, and is wearing a T-shirt that reads “No Fuckery”, the motto of his employer, Urban Alchemy. The non-profit, founded in San Francisco in 2018, has received tens of millions of dollars in contracts from the city to “turn around” downtown streets. The service it provides is maybe best described as a for-hire neighbourhood watch. Its employees, in a uniform of dark-green army camouflage jackets, walk the streets, acting like an auxiliary police force. Adisa says Urban Alchemy has reversed 1,300 opioid overdoses in the two years he has worked there. He once had to give naloxone to a dog that had licked fentanyl off the sidewalk. 

The Tenderloin, a neighbourhood just south-west of touristy Union Square, is home to some 35,000 people in fewer than 50 cramped blocks. Drugs and destitution are out in the open. Sticks of burning incense have been jammed into the shutters of closed businesses to mask the smell of human excrement. Glass from shattered car windows glitters in the gutter. A few people are hunched over in wheelchairs, clutching the paraphernalia of hard drug use. Urban Alchemy has around 45 people on the ground here at any given time.

On patrol, Adisa, 53, fist-bumps people he knows on almost every street, hollers “Salaam Alaikum” into the doorways of Muslim-owned shops and calls everyone he stops to catch up with “loved one”. A small dose of humanity in an otherwise bleak picture. Like many of Urban Alchemy’s workers, Adisa is an ex-convict. He served more than 30 years in prison for crimes related to being a member of the Crips gang in Los Angeles. “I’m from this walk, even though I’m not from San Francisco. It doesn’t matter where the walk is, anywhere there’s all this, that’s our walk,” he says, gesturing at a semi-conscious man sprawled on the sidewalk. Adisa watched the zombie apocalyptic series The Walking Dead in prison. Now, he is frequently reminded of it.

© Illustration by Justin Metz

Urban Alchemy’s mission isn’t to move people, Adisa says, but to clean up the areas where it operates, turning up at 7am every day where people are sleeping on the street, collecting their trash, bringing coffee, chatting. Some of the homeless end up in shelters this way; others are guided to nearby churches or charities to get clothes or food. In some cases, Urban Alchemy employees do physically move people: loitering shoplifters, drug users near schools, people relieving themselves in public.

Employing ex-cons, recovering addicts and people who have been homeless has been controversial. Urban Alchemy has been accused of exploiting a loophole that exempts charitable organisations from standardised security training and background checks, and a small number of its employees have been shot at or injured on the job. But it is having a noticeable effect on streets where tent encampments have been cleared out. It has been mostly welcomed as trust in traditional institutions like the police has hit an all-time low and residents say the city hasn’t felt this unsafe in decades.

Visitors to this part of town are confronted with San Francisco’s stark racial inequality: more than 40 per cent of the homeless are black or mixed race, while the broader population has become overwhelmingly white. (Over the past 30 years, the percentage of the population that is African-American has halved, to 5.7 per cent.) The median income for white households is three times larger than for black households, the largest gulf in the country. “‘We got a raw deal’ is the thinking in this community,” explains Adisa. Black people are almost 10 times more likely to be homeless than white people in the city, compared with around three times nationally. 

We meet Merlin, who is 71, black, with a grey beard and wiry frame. He has spent the past 35 years homeless in San Francisco. “Five years ago, it wasn’t like this,” he says about the people openly using drugs around us on Market Street, just outside the Urban Alchemy headquarters, where he sells souvenir photographs of local liquor stores. “Five years ago, a black guy with a pipe got arrested; now the police walk past a white guy with a needle in his arm,” he says. Nearby, a white man is sitting at a bus stop, unconscious and bent over at the waist, blackened fingertips grazing the pavement. His trousers have fallen down, exposing his behind. One cheek is tattooed with the words “your name”.

Merlin is unusual among San Francisco’s homeless population because he was born in the city. California, with its climate and liberal reputation, has always been a lure for people on the fringe. In 2014, the state downgraded many theft and drug possession crimes from felonies to misdemeanours. San Francisco is particularly alluring because of its historical embrace of counterculture and progressive politics, funding free food and shelters. Adisa calls it a “sanctuary city”, using positively a term American conservatives deploy as an insult. “Flower power kids came here in the ’70s to rebel against their parents,” Merlin says. “Now, kids come here to do fentanyl.”

Urban Alchemy is one of the more straightforward examples in a long history of plans to tackle homelessness in San Francisco. When she was mayor in the 1980s, Dianne Feinstein converted a set of old Muni buses into temporary shelters, and Art Agnos, mayor from 1988 to 1992, mulled putting homeless people on a mothballed aircraft carrier, the USS Peleliu, and anchoring it in the bay. Urban Alchemy is backed by mayor London Breed, who was elected in 2018 on a promise to solve the homeless crisis — just like many mayors before. 

By the time she swept into office, the problem had grown to shocking proportions. The number of homeless people on San Francisco’s streets peaked at about 8,000 shortly after Breed’s election, roughly 25 per cent more people than a decade earlier. The official count has since fallen by a few hundred people, but San Francisco still has one of the highest rates of homelessness of any major American city. The problem is highly visible here because of the city’s tiny footprint — 47 sq mi surrounded by water on three sides — and because more than half of the homeless are unsheltered, compared with just five per cent in New York City. It is the most dangerous time to be homeless in San Francisco’s recent history, with deaths as much as doubling during the pandemic because of drug use, violence and a drop in medical and social-support outreach. 

San Francisco’s city budget this year is $14bn — almost twice the budget for the entire state of New Hampshire — for about 810,000 residents. Breed says she will spend an extra $600mn — equivalent to the city’s entire annual homeless budget — to cut the number of unsheltered people in half by the end of 2028 by prioritising building permanent supportive housing over temporary shelters. (Urban Alchemy’s more than $40mn of contracts with the city also involve running private shelters.) Part of the problem is that these shelters can be full of empty beds as people in the grip of powerful addiction are lured back to the streets for easy access to their next hit.

The city’s first female African-American mayor, Breed was raised by her grandmother in San Francisco’s public housing system and experienced many of the city’s issues first hand; her younger sister died of a drug overdose in 2006, and her brother was sentenced to 44 years in prison in 2000 on charges of manslaughter and armed robbery.

But she faces the confluence of problems that has plunged San Francisco, especially downtown, into uncertainty and chaos. It has been the slowest city in the US to recover from the pandemic; mobile phone activity in the downtown area is still only a third of 2019 levels, a sign of tourism’s decline and tech companies’ retreat. “We’re trying to adjust, we have to adjust,” Breed says. San Francisco has a “young workforce that is not shopping and not going downtown”, which has intensified hotspots like the Tenderloin and “Soma” — South of Market Street — for drugs and outdoor sleeping, she says. “We have got to get control over open-air drug dealing and behavioural health challenges if people are going to feel safe coming to San Francisco.”

It is a striking downturn for downtown. In the late 1980s, the luxury department store Nordstrom made an unusual bet on an area once considered skid row, opening on Market Street and ushering in a wave of redevelopment. This month, more than 30 years on, the retailer announced it is abandoning the city entirely, with its landlord blaming “rampant criminal activity” for making operating too costly and too dangerous. Down the street, Whole Foods — the Amazon-owned grocery chain symbolic of upper middle-class aspiration — closed its flagship shop a few weeks earlier, citing worker safety. In just over a year, staff made almost 600 emergency calls about violent shoplifters and overdoses.

© Illustration by Justin Metz

The area has lost a net of 2,500 businesses since March 2020. Now residents are doubtful about the long-delayed opening of San Francisco’s first Ikea just three blocks away from Whole Foods — although Ikea said its plans had not changed. “So many stores shuttered in downtown SF. Feels post-apocalyptic,” Elon Musk wrote earlier this month on Twitter, whose headquarters are practically next door to the shuttered Whole Foods and were once part of the would-be downtown turnaround. 

“The drug-dealing crisis downtown has overrun a large section of our city,” says Brooke Jenkins, San Francisco’s new district attorney, who was elected to “get tough” on crime. She is following Chesa Boudin as the senior legal prosecutor in the city. Boudin was kicked out of office last summer by voters who said he had made the city less safe. Petty crime like burglary had risen on Boudin’s watch. He pledged to approach crime differently than his predecessors, in part by no longer prosecuting lower-level offences such as recreational drug use. “We have a crime problem and we have to address that in reality,” Jenkins says. “Yes, we’re liberal. We’re compassionate, but we understand the fundamental need for public safety.”

Salesforce Tower rises from the corner of 1st and Mission Street on the edge of the financial district, just a couple of blocks north-east of where Merlin sells his souvenirs. The slender glass obelisk dominates the city’s skyline. Its biggest tenant is one of the city’s most devoted success stories, Marc Benioff, who can trace his San Francisco lineage back generations and who founded the software-as-a-service company in 1999. In less than two decades, Salesforce became the city’s largest private employer.

When he bought the naming rights to the $1.1bn tower, Benioff continued a family legacy of leaving a mark on San Francisco. His grandfather was the visionary behind the city’s Bart transportation system, which connected residential neighbourhoods to downtown and helped it flourish. Benioff originally intended to build Salesforce a corporate campus in Mission Bay, on the eastern edge of the city, but changed course to use his company’s growth to help revitalise downtown.

At a ribbon-cutting ceremony in 2018, the entrepreneur said the tower would be a symbol of hope for an area grappling with chronic inequality. A new flood of tech workers to the city would lift all boats. But he warned: “We see extraordinary wealth, a community with over 70 billionaires, but also grinding poverty in the shadow of this building . . . If a city fails to invest in its people — their education, their wellbeing, their safety — over time, businesses flee.” Five years later, that warning has become a reality. In March, Salesforce put about six of its 30 floors up for lease after laying off 10 per cent of its staff, about 8,000 people. It was embracing remote working and cutting costs to weather the worst downturn for the tech sector since the dotcom bubble burst in the early 2000s. (Benioff declined to comment for this article.)

Tech companies were among the most enthusiastic in embracing remote work during the pandemic, banking a tax saving and allowing employees to avoid San Francisco’s high rents. The reduction in demand has only been compounded by tech lay-offs. “The irony for the city is that the economy that grew up as a response to the measures we adopted in 2009 to pull us out of the recession focused on a single industry,” says Wade Rose, the president of Advance SF, which lobbies on behalf of the city’s business community. “Then the pandemic hits, and it turns out that the economic sector we had built up was the most amenable to switching where their employees worked from.”

Salesforce Tower isn’t the only beacon of hope turned mausoleum. Opposite the Financial Times’s office on California Street, a mostly empty office block that was valued at $300mn in 2019 just changed hands for as little as $60mn. The sale could trigger the repricing of workplaces across the city. Thirty per cent of commercial real estate is now empty, a larger portion than New York, Miami and Detroit. Areas surrounding “zombie offices” are a growing hollow at the heart of the city. Around the corner, the spectre of a branch of Silicon Valley Bank, which collapsed in March, is another reminder of a fragile financial infrastructure.

What happens downtown has an outsized significance. San Francisco anchors a wider Bay Area economy which thrived during boom times, and 80 per cent of the city’s $250bn annual GDP is produced by office-based industries mostly centred in the financial district. Mayor Breed has put forward a plan to clean up and reinvigorate downtown, but urban renewal projects of the scale required tend to take decades, rather than years. Until then, San Francisco may simply feel emptier than before. At Embarcadero station, which delivers workers to the financial district for example, passenger numbers are down 70 per cent since 2019. 

Many Silicon Valley luminaries won’t be around to find out what happens. They have long since lost confidence in San Francisco. Libertarian billionaire venture capitalist Peter Thiel relocated to Los Angeles in 2018, indignant at what he saw as a left-leaning political class that had become intolerant of big business. Two years later, Charles Schwab, founder of the brokerage giant and once one of San Francisco’s most generous philanthropists, relocated headquarters to Texas in protest at high tax rates and regulations. Billionaire Michael Moritz, a Welshman who is one of the most senior investors in tech as a partner at Sequoia Capital, wrote an op-ed in The New York Times in February blaming the city government for tinkering with political bureaucracy rather than solving its social issues. “Even Democrats like me,” he wrote, “are fed up with San Francisco.”

How does the “doom loop” theoretically play out? Remote workers never come back, driving down the value of office space and leading to the shuttering of more businesses. Political infighting among progressive politicians continues, keeping the city from making concerted progress on the homelessness, violence, drug use. The city’s tax base shrinks further, exacerbating a projected $780mn budget deficit over the next two fiscal years and withering vital public services. Then, in 2024, a Republican wins the US presidential election and, unable to resist the political boon of bashing the country’s most iconic liberal city when it’s down, finds ways to make a turnaround even harder. In this scenario, San Francisco becomes the new Detroit, a town remembered for what it used to be.

A person living here could be forgiven for, on occasion, thinking that’s where things are going. In just one week of reporting this story, one of us was the victim of three separate crimes: their handbag was stolen; they were harassed by a man on a Bart train who cornered them in their seat; and a man tried to break into their home. This is not normal.

But the doom scenario would not be in keeping with this city’s history. The motto on San Francisco’s crest reads Oro en paz, fierro en guerra, Spanish for “Gold in peace, iron in war”. In 1848, the Gold Rush transformed a village of fewer than a 1,000 people into a bustling city of 25,000 souls. A few years later, gold busted out and the city slumped economically, shedding residents. It wasn’t long until silver from the Sierra Nevadas, one of the largest finds in history, touched off another bonanza. The cycle repeated itself through the devastating earthquakes of 1906 and 1989, through the Aids crisis, through the 1990s dotcom collapse. No other major American city has had to rebuild and reinvent itself so many times. Or done it so well.

Inequality is not a product of the internet era either. The gains on the city’s upswings were often unevenly spread, with opulent estates growing up on the top of San Francisco’s vertiginous hills. Robert Louis Stevenson described what was being orchestrated from a neighbourhood “crowded with palaces” in 1880, on the edge of what is now the financial district: “From [Nob Hill], looking down upon the business wards of the city, we can decry a building with a little belfry, and that is the stock exchange, the heart of San Francisco; a great pump we might call it, continually pumping up the savings of the lower quarters into the pockets of the millionaires upon the hill.” These disparities never seemed to quash San Francisco’s progressive character; the city fostered the Free Speech Movement, the Black Panthers, the fight for gay liberation — almost always when the country at large was experiencing periods of maximal illiberalism, intolerance and insecurity. San Francisco has always been a boom and bust town. Maybe it always will be.

Tabby Kinder is the FT’s west coast financial editor. George Hammond is the FT’s venture capital correspondent

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