San Francisco is one of the best cities in the U.S. for restaurants. In 2015, Bon Appetit declared it “the best food city in the country.” U.S. News and World Report ranked San Francisco as the #1 foodie city. It comes second, behind New York City, for the city in the United States with the most Michelin starred restaurants. But the city’s regulatory regime is doing all it can to undermine this status, which reflects on the unintended consequences of progressivism.
To begin with, the pandemic hit San Francisco’s restaurant scene hard. Many restaurants struggled with San Francisco’s restrictions, such as requiring proof of vaccination and indoor mask mandates. Analysis from the California Policy Center showed that as of December 2021, San Francisco restaurants had 46% fewer patrons than they had in December 2019. The city by year-end had 13.7% fewer restaurants. In cities with fewer restrictions, like Austin, Miami, and Phoenix, customer rates returned to normal.
But that is just one example of restaurant-killing policies in San Francisco; the problem is really more structural than a temporary pandemic. It is, in fact, a surprise that anyone there can open a restaurant at all.
A recent report from the Institute for Justice shows that it costs $22,648 to start a restaurant in San Francisco, the highest in the country. That is about $9,000 more than Minneapolis, the second most expensive city on the list, and ten times as high as America’s other main foodie destination, New York City.
IJ says that San Francisco is “the most complex city we studied.” Opening a restaurant requires 17 fees, 12 forms, and a total of 61 steps. “Building permits required to open a restaurant cost $7,600 in review fees and $2,423 in issuance fees,” reports IJ.
IJ points to environmental review as one of the biggest barriers to opening a business in San Francisco. The California Environmental Quality Act (CEQA) is “intended to inform government decisionmakers and the public about the potential environmental effects of proposed activities and to prevent significant, avoidable environmental damage.” But usually it is used by anti-development activists to stop or delay new businesses.
Often the delays have nothing to do with the environment. Activists tried to stop The Creamery, a coffee shop well known in the tech world, from moving into San Francisco’s mostly Latino Mission District. At a Planning Commission hearing, opponents said they would rather have a Latino-owned business in the space. The Creamery’s owner, Bradley, agreed to make changes, like providing menus in Spanish and English. The Planning Commision approved his shop, but then another activist, Ben Terrell, filed an appeal under CEQA that argued the cafe would gentrify the neighborhood. The case “is all about displacement,” he said. The San Francisco Board of Supervisors rejected the appeal.
The Creamery was given permission to open, but some would-be business owners give up. Jason Yu spent over $200,000 trying to open a different ice cream shop. The Planning Department required him to notify neighbors within 150 feet. A nearby ice cream shop objected, which led to a hearing that featured 64 people. Yu won approval, but he had to spend even more time getting permits and paying fees. When faced with $120,000 in construction costs, he decided it wasn’t worth it and abandoned his business. “We just burned money. We didn’t achieve anything,” he said. “It shouldn’t be that big of an issue to open an ice cream shop.”
“For the past decade city leaders have skyrocketed our expenses,” complains bar owner Ben Bleman. “Higher fees. Higher taxes. More legislation targeting us. And more red tape, adding to a permitting process and planning code that rival the Soviet Union in complexity and irrationality.”
The Soviet comparison is right. The problem is progressive policy.
Problems don’t stop after restaurants open. Restaurants struggle with break ins, thanks to progressive criminal justice reform. San Francisco’s high minimum wage, which does not include an exemption for tipped employees, makes it more likely for a restaurant to close. Record high housing rents, due to lack of development (which faces its own political barriers), make it difficult to keep employees in the city.
IJ suggests reforms in its report, including lowering fees for permits and licenses, simplifying the licensing process, and exempting more projects from environmental review. “No other city we studied offers the public veto power over a business in such a direct manner,” says the report. “The public hearing process creates unnecessary delays for entrepreneurs.”
Things are starting to change as San Franciscans have become fed up with big government. In 2020, voters passed a measure to streamline the permitting process, but it did not apply to much of the city. Mayor London Breed proposed further streamlining under the Small Business Recovery Act, but much of it was rejected by the progressive-dominated Board of Supervisors.
All of this points to the downside of a progressive political culture where government itself is considered a force for good. The charitable interpretation of what results is that bureaucrats, wishing to protect the public, unwittingly create a regulatory state that spirals out of control, getting captured by NIMBYs and special interests. The less charitable interpretation is that the regulatory state is desired by said bureaucrats, who see it as a chance to collect graft and control the citizenry.
No matter the intentions, the results are clear in San Francisco, which seems bent on decimating a cultural asset. This is a feature, not a bug, of its big progressive government.
[This article was co-authored by Scott Beyer and was originally published by Independent Institute]
Rebecca Lau is a libertarian activist and content staffer for Market Urbanism Report.
Market Urbanist is a media company that advances free-market city policy. We aim for a liberalized approach that produces cheaper housing, faster transport and better quality-of-life.
Market Urbanism is a theory calling for free-market solutions to urban problems. Rooted in classical liberalism, it posits that cities work best through the bottom-up, private sector activity of many individuals, not top-down government plans. In this nifty guide, Scott Beyer describes how these free-market ideas can apply to housing, transport and public administration. You can purchase the book (including one signed by the author) below.