Meet San Francisco’s ‘Permanent Underclass’ — They’re Not Backing Down | Invesloan.com

Halfway through our interview with Kacie Barrett, a 26-year-old project manager in San Francisco, her screen froze.

When she came back on 30 seconds later, she apologized for the choppy WiFi, a result of downsizing her Xfinity internet package from $120 to $40 a month, which she splits with her housemate.

Though the slower internet package is a challenge when she works from home twice a week, Barrett said she’s had to downsize much of her life over the past two years as the cost of living in San Francisco has skyrocketed due to the city’s AI boom. She moved from a $2,000 studio apartment in Russian Hill to a $1,850 room in a shared apartment in Nob Hill. She cooks most of her meals, only goes out once a month, works out at the cheapest gym she could find, and Ubers everywhere instead of spending on a car.

“I definitely feel like I am living like a college student, not an adult,” Barrett said.

The term “permanent underclass” has floated around the internet for months, referring to the idea that techies who don’t make it to frontier artificial intelligence labs will fall behind their peers financially and professionally, to the point where they become serfs to their AI-new-money overlords. It’s been treated like a meme, with some leaders dismissing the phrase — OpenAI CEO Sam Altman called it “so dumb” in a July interview, and Andreessen Horowitz partner Anish Acharya said in September that it was a “funny dark fantasy.”

However, another group of San Franciscans feels like they are already living this reality. It’s not young techies or startup founders. It’s small-business owners and workers outside the tech sphere who, like Barrett, have called San Francisco home for years but now feel that life in the city has become an exclusive party they can’t afford to get into.

The people left behind by the AI boom

High salaries offered by AI companies like OpenAI, Anthropic, Thinking Machines Lab, Cognition, and Databricks are creating a concentration of wealth in San Francisco. That’s set to intensify when the looming IPOs of Anthropic and OpenAI mint overnight millionaires and billionaires — and the rest of the city’s residents who work in service, small business, and other white-collar roles are left to compete.

Still, not everyone thinks the future is so grim. Tushar Kumar, the cofounder of Twin Peaks Wealth Advisors, who works with clients at OpenAI and Anthropic, said he doesn’t see much merit in the idea of a permanent underclass and that smaller companies and startups will build on emerging technologies and succeed in the long run.

The “real concern,” he said, was for people who don’t work in AI or tech.

“Technology has a way of scaling that most other businesses — like medical providers or service-oriented businesses — cannot,” Kumar told Business Insider. “So there will be some headwinds for people working in the non-tech sector because of that dynamic.”

Shared apartments are a necessity

The most obvious effect so far of San Francisco’s latest wealth boom has been on housing costs. Tech workers with deep pockets and a fear of losing out are driving up home prices.

Business Insider’s James Rodriguez spoke earlier this year with tech worker Bill Law, who said he and his wife submitted a $1.3 million bid for a house in the Sunset District, $300,000 more than the asking price. They were edged out by a winning offer of $1.86 million.

The rental market’s not doing any better.

Barrett, who works at a Fortune 500 retailer and makes around $120,000 annually, is considering leaving San Francisco after six months of searching for a rental in her price range to no avail.

She said listings for other shared apartments are averaging $2,500 —about half her monthly take-home pay.

Barrett sees three options: live frugally in a studio that’s too expensive for her current salary; commute into San Francisco for work; or find a higher-paid job. “That’s if I can get a job,” she said.

Tolgay Karabulut, the 43-year-old owner of bakery BaklavaStory, has felt the strain from San Francisco’s rising housing costs.

Karabulut has been living in San Francisco since 2009 and opened his bakery in 2022. The day Business Insider spoke to him was a good sales day — he had made about $2,600 selling 68 trays of baklava, a flaky Turkish dessert.

He paid himself $40,000 last year, reinvesting most of his profits into the business. He pays about $1,300 a month for a shared apartment, where he has no closet.

“I have a four-drawer unit that I put my stuff in,” he said, adding that he rotates between four pairs of pants and 20 shirts.

“I hope one day I’ll make more money, have a bigger kitchen in the bakery, and rent myself an apartment,” he said.

The consequences of not being able to enter home ownership are vast and long-term, said Alexandra Killewald, the director of the Stone Center for Inequality Dynamics at the University of Michigan.

“For most Americans in the US, their home is their biggest asset,” Killewald said. “Being able to purchase a home and then experience the gains of your home increasing in value is an important pathway for wealth accumulation for the middle class.”

Good luck trying to hire good talent

Some food businesses are seeing great success — tech workers have to eat — but hiring good talent is becoming an uphill battle.

Nasir Armar and Alexander Hong co-own Parachute Bakery, a thriving business with an average of 600 customers per day, many of them from nearby AI firms. However, unlike the neighboring labs, it struggles to hire because service workers can’t afford housing.

In interviews with potential staff, Armar said he gets questions about whether the AI boom will hurt them and whether they’ll be able to make it in the city with the salary he’s offering.

“In this last week, we’ve lost three employees — interviewees who were given a green light to join — with them having changed their mind and decided not to move out here because they feel very unsafe about what’s going on,” he said.

Karabulut from Baklava Story said he’s holding on tight to the staff he has — like offering his seven-member crew free lunch — even if it means taking less home for himself.

“I don’t want these people to leave. And I just don’t want them to struggle with their life. I want them to make OK money,” Karabulut said.

Techies are feeling the squeeze, too

Tech workers who aren’t yet part of the upper stratosphere are holding onto hope and see AI as an opportunity to escape a so-called permanent underclass.

Grace Ling, a 29-year-old UX designer and founder of Design Buddies Community, recently took to X to air her frustrations about living in a five-bedroom hacker house with six other people, saying she was “so done” with her living situation.

She told Business Insider that she dreams of buying big houses and hosting parties, but it’s “not a dealbreaker” to a good life.

“Permanent underclass is like you’re stuck in your ways, you’re stuck at this job, you’re stuck clocking in 9-to-5 or 9-9-6 and having the lack of freedom,” she said. “And I think freedom can be created in many different ways.”

She believes the fear that AI will take over creative positions like hers is overblown and that people should instead “lean in with curiosity.”

Ben Kennedy, 27, cofounder of Gecko, an equipment-rental platform, similarly doesn’t believe AI will create a permanent underclass, but worries about the fabric of the city as more people are pushed out.

“I love hanging out with teachers and doctors and lawyers and all walks of life,” he said. “I don’t want to just hang out with tech people all the time.”

San Francisco’s big catch-22

Barrett, the retail project manager who’s considering leaving the city, hasn’t always had to count her pennies.

She started her career as a tech consultant at McKinsey but left because her heart wasn’t in it. She said she doesn’t have much in common with tech bros.

But she’s contemplating moving back toward a tech-related gig to afford the lifestyle she wants. Even nature-based hobbies like hiking require a car to reach the mountains. She’s not meeting her investment goals and worries about paying her credit card bill every month.

“It’s almost like a catch-22. You can’t afford to enjoy the fun things about San Francisco unless you are in tech,” Barrett said.