High-Tech Millennial Lifestyle Inspires Micro Apartment Boom

Since the 1980s, cities around the country have been contracting serious cases of Silicon Valley envy. Everyone, it seemed, was looking for the magic formula to create their own high-tech incubators with educated, upwardly mobile work forces that would drive their cities to modernize and grow.

"You always heard about cities vying to become the second Silicon Valley and I thought, 'What a joke,'" said Glenn Kelman, the chief executive of Redfin, the real estate firm. "Well, now that is happening. The future happened first in San Francisco, but it is happening everywhere."

From Seattle to Portland, and from Denver to Austin, new tech hubs are prospering. Many of them are filling up with emigres from the Bay Area who simply couldn't afford to work in tech there any longer.

But it's not just the workers themselves who are spreading their wings. The lifestyle trends pioneered by a new generation of tech millennials, and by technology itself, are also spreading from coast to coast. And that is influencing housing trends.

Millennials are demanding an "on-demand lifestyle," as Kelman puts it, that values location over square footage and amenities. They want to be close to the city center, close enough to walk, bike, or rely on public transportation.

Millennials are demanding an "on-demand lifestyle" that values location over square footage and amenities.

The absence of a garage used to be a deal-breaker in the Bay Area. Uber and Lyft helped change that. The kitchen was once the first room that people looked at when they toured an apartment or condo, even before the master bedroom. Not anymore. Today people can order from any number of food delivery services; cooking has become a lost art for many. And when you have teams of chefs at work preparing free or subsidized meals—as employees of Google, Twitter, Facebook, and Uber do—why bother stocking your refrigerator at home?

Even the living room has become less relevant. The younger generation doesn't want to bother with the hassle of parties anymore. You can socialize online. Do you really need to throw a party to meet your girlfriend or your boyfriend?

"I don't know people under 30 who entertain," Kelman said. "There is so much social capital that is being re-invested elsewhere. I think almost the whole home has become a private space."

The tech lifestyle leanings have given developers confidence to build smaller. From 2002 to 2008, the average unit across the country held steady at 995 square feet, according to RealPage/MPF Research. In the current housing cycle, it has fallen almost 5 percent, to 950 square feet.

On the West Coast, the falloff has been even more pronounced. Average units grew from 954 square feet to 963 square feet between 2002 and 2008-2009, but have since fallen to 919 square feet, with unit sizes even smaller in San Francisco.

Much of the unit size reduction, in actuality, came from developers building more studios and one-bedrooms, which increased from 40 percent in 2002 to 50 percent in the current cycle, according to SB Architects in San Francisco.

Still, the trend toward more efficient units has pushed designers to get creative. Architects have worked to make the kitchen more a part of the living space—and to make the finishes in both exactly the same. "You really have to think about the cabinetry, the built-ins, furniture placement," said Scott Lee, president of SB Architects. "It is a much more granular level of design."

AP Photo/Julie Jacobson

As Curbed has documented, a move toward micro units of 350 square feet is on the extreme end of the trend. These units have become popular in cities like San Francisco, New York, and Seattle. They generally command higher per-square-foot rents, but studies have shown that resident satisfaction is lower in buildings with only micro units. (The satisfaction and retention is higher when the micro units are mixed with larger units, as tenants see the homogeneity of everyone living the same way to be oppressive, Lee said.)

The recession played a role in developers' apprehension about building more, of course. Many have engaged in a form of "cautious construction," Kelman said, building projects with fewer units to hedge risk, even in a region thirsty for housing.

Facing tight margins because of soaring land costs, developers in San Francisco have pushed to right-size units for the current market, Lee said. But the city's tough entitlement environment can get in the way. Developers face more reviews, must submit more documentation, and face greater uncertainty over approvals than most other cities in the country, and local community groups exert tremendous pressure on politicians to preserve the character of neighborhoods.

The previous developer of 72 Townsend, a 74-unit luxury development in San Francisco's South Beach/SoMa district, designed the project for the pre-recession market, with units averaging 1,150 square feet. The current developer, KB Home, who purchased the project in 2013, would have preferred to decrease the units to 950 square feet, but with construction documents already completed with the city, they decided to move forward with the old plan, Lee said.

A spokesman for KB Homes declined to say how the units are selling, citing company policy. They range from 619 square feet for a one-bedroom to a 1,740-square-foot penthouse. KB Home is selling a two-bedroom, two-bath unit with 1,198 square feet for $1.459 million.

With technology that allows us to do a lot of work almost anywhere, there is a growing acceptance about seemingly more efficient communal live and work spaces.

Forget about cubicles. At the SB Architects offices in San Francisco, a decade ago staffers occupied glass offices on the top floor. Today they are on a lower floor and Lee no longer has an office. "We have people all over the top of each other," he said.

The "new media" world is no different. At Vice Media's Brooklyn offices, writers, designers, and coders mostly sit shoulder-to-shoulder, walking about the offices with their laptops in hand and their phones attached by headphones when they want to have a semi-private conversation. The same is true at Vox Media (Curbed’s parent company) in Manhattan.

"It is a shared culture," Lee said.

Lee believes that the new acceptance of communal space stems from the popularity of Airbnb. With people camping at other people's private homes, "there is not going to be a greater resiliency to not have your own space and not have your own stuff, and not have your own privacy."

"San Francisco has become this scientific experiment about what happens when you create thousands of jobs without adding any housing."

Nevertheless, not everyone is prepared to live a cramped lifestyle at home. In San Francisco, real estate agents have jousted with tech workers over their obsession with living in the city. As San Francisco has become more expensive, Redfin's agents have recommended "jumping the bridge" to more affordable towns like Fremont, Danville, or Walnut Creek.

"With this new generation of millennials, those conversations haven't been going well," Kelman said. "People really want to stay in the city."

That, in turn, has put enormous pressure on big tech firms like Google to build San Francisco campuses. And expansions beyond the Googleplex are under way.

For some Silicon Valley techies, the pressures of rising housing and median rents in San Francisco—which surpassed New York last year before falling back 20 percent so far this year—have become intolerable. "San Francisco has become this scientific experiment about what happens when you create thousands of jobs without adding any housing," Kelman said.

And so many are now leaving. Last year the region lost more than 7,500 residents to other parts of the U.S., the first net migration from the Silicon Valley since 2011, according to the Silicon Valley Competitiveness and Innovation Project.

The number of buyers in Portland originating from the Bay Area more than tripled from 2014 to 2015, and more than doubled in Phoenix and Seattle, Redfin research showed.

The Bay Area's losses are other cities' gains. And even places like Tucson, still considered an "urban planning nightmare," are gaining traction in their quest to be the "Second Silicon Valley," Kelman said.

• Lack of New Construction Pushes Bay Area to the Brink of a Bubble [Curbed]
• Property Lines archives [Curbed]