The current vacancy rate for apartments in San Francisco is holding at under 4 percent, driven by a backlog in development while employment in the City has jumped, leading to an expected spike in rents.
As plugged-in people know, a wave of new units are on the way with over 800 new units delivered last quarter and another 6,000 to be delivered over the next two years.
Noting the pipeline of new development and income growth which hasn’t kept pace with the increase in rents, Cassidy Turley is expecting rental rates in San Francisco to plateau over the next couple of months, flatline in early 2014, and then dip a bit, but not by much.
I am not sure rents will take a nosedive.
The market is made at the margins today, with only the best candidates being able to afford the very limited supply.
For one perfect tenant with the right job and the right income, you have 5 others on the sideline waiting for any opportunity to make their move. SF is and continues to be a lifestyle magnet in the BA.
This is the demand side.
On the supply side, a huge majority of units are hogged by tenants who are paying less than market rate. Even someone who moved in 2 years ago pays 20% less than current market rate. 6 years ago, this would be 40%. 10 years ago: 60%. It would take a huge dip to get them to consider moving. This means that supply will be either new supply or unavoidable turnover. That’s still a very constrained market.
Then again, who knows what will happen 2 years from now.
@LOL –
The thing to remember here is that several large scale developments, many in mid-market, will be coming on in the next two years. Even if they lease in stages, that is still hundreds of units suddenly available at a given moment in time that are brand new in an up-and-coming location…many of the desirable tenants will gladly gravitate toward these options.
Dumping a significant amount of units in a short time frame does soak up demand, as a new building (especially for rentals, less so for condo/purchase) does not create tenants out of thin air…they are tenants who would have been moving to the city anyway. The best tenants go for the best units.
I am sick of feeling guilty about my rent controlled apartment. I put myself through college as did my wife. We don’t have parents with any money to help us with anything. They are normal hardworking people. We moved to SF 7 years ago and it was a stretch at the time to afford our $1600 a month 1 bedroom. Now we are suppose to feel like crap for having that?
In Boston I had no rent control and I had to move every two years because they raise the rent $100 to $150 on you every year and it becomes cheaper to move. Now we feel stuck in our 1 bedroom. What to do about having a baby? Impossible here. Even 3 years ago you could get a 2 bedroom or 3 bedroom place in Bernal for $2000-$2200. Now it is $3800?!?!
You can talk market rates all day but it still comes down to landlords making SERIOUS bank off those properties. And I have landlord that showed me how much she makes off my building. Half the people pay $1000 below market rate. The other half pay around market rate. She collects about $14,000 per month from her building. Her taxes/mortgage and total costs are around $4,000 per month. Trust me landlords make money off rent controlled buildings. Why do people in tech get paid $100k plus and people in advertising/buying/sourcing/desig/other professional jobs get paid $50-$70k on average? And why do baby-boomer parents insist on showering their kids with money? Spoiled brats a lot of them. It is a frustrating situation for everyone involved.
CA also now has higher income tax than Hawaii. If you make over $43k you are in the same bracket as people making up to $250k. Ridiculous! Up to $80k is far different than everyone between $80k up to $250k. That doesn’t make things any easier. Sick of people making $250k complaining about SF being expensive. Lets switch for a few months!
^jobs pay different amounts because of simple supply/demand.
No one is saying that you should feel guilty. Doesn’t mean that rent control is a good system or the answer to any particular problem.
I get your frustration, Kevin. Believe me. We moved to SF 7 years ago as well. It was not a walk in the park, especially with no job. I had a solid experience in software though. Then we made our way little by little.
We were rent-controlled in a sweet enough deal 3 years ago. We also had neighbors paying even way less than we did and they too felt like they were in a gilded cage. They’re still in there, slowly giving up on a family for the sake of their jobs, their lifestyle. Believe me it is not worth it.
Now the big thing 3 years ago was that RE prices had gone down a bit. We knew we wanted to buy into a bigger place than we rented. We were lucky enough that the market helped us and we had decent enough pay. There was no outside funding involved. All it took is to recognize the incredible luck we were presented. If you follow this blog since 2007 or before like a few of us do here, you could have seen the signs.
Why do people in tech get paid $100k plus and people in advertising/buying/sourcing/desig/other professional jobs get paid $50-$70k on average?
Well, I blame globalization. The good one. The one that plays in favor of the BA.
Tech companies today hire locally but earn globally. This means Apple sells 100 gazillions of $600 phones in the world and makes tons of profits but needs local talent to design the next generation of hardware and software. Most companies like Apple are in the Bay Area and suck out all the talent from each other. There’s just no enough of the people they need.
Also, US education cannot produce enough good profiles, and H1-B is restricted. This means too much demand and not enough supply. A good time for us geeks. 100K is likely to be a junior salary anywhere within the big names.
In parallel, there are several centers in the US for advertising, marketing, design. Most big cities are in the game and they have more qualified labor. Also, a nationwide ad agency that can have its talent living in Chicago is not going to pay SF-level tech salary for the same talent. Why pay someone 150K in SF when another guy will do the job for 60K in Atlanta? and he’ll have a very decent life there with 60K.
It’s the conjunction of a perfect storm. Had we not bought 3 years ago, we’d have moved on to another city where life would be easier. Not everyone will want to do that.
lol, got any facts to back up your assertion about the “discount” RC tenants receive? Because I can tell you from our experience, my wife and I have 19 years of RC on our apartment and don’t have anywhere near the numbers you’ve described.
@lol is right. I transferred from SF to our Chicago office and my salary stayed the same but my lifestyle went WAY UP. (I am in Architecture). Outside of Tech jobs, I do not believe most attorneys, doctors , architects and engineers are paid any more $ is SF, than in San Diego, Chicago, Seattle, Etc. Our firm , a major recognizable international architecture group , pays no more at our San Francisco office despite the high cost of living, and I think this is partly due to the number of people like myself who were willing to sacrifice to live in a Northern California .
I am one of four people in our office who left SF over the last 6 years because of cost issues and came to Chicago. If I were to try to replicate my lifestyle ( doorman luxury high rise , 2bd condo , 1 deeded indoor parking spot, 4 blocks to beach, one block to Michigan Avenue, ) which now includes being able to travel comfortably, save money, and live better , I would have to make about $350,000 MORE a year in SF.
Architect,
I am actually considering a similar move.
The wife is being offered a job in LV where housing is 4 times cheaper than SF, and my boss would be OK with me keeping my CA salary while telecommuting. We would put our SF place on airbnb with a minimum of 1 month, making sure we do not get sticky tenants.
The low cost of living and the SF incomes: mind-boggling numbers.
I might leave the BA in the next 6 months.
^I wish you luck, lol. I did something almost identical three years ago, and moved back up here six months later. Las Vegas is, um, yuck. It’s a fine place to visit, but the average IQ of working residents has to be 30 points lower than the Bay Area (there are plenty of intelligent retirees, but I’m 34).
Yuck indeed. But I love the outdoors and the extra cash will be great to make up for the few years of cultural desert to cross. Plus 3 years of cheap living will pay for my new place on the French Mediterranean. That’s a good enough motivation.
@lol, not a Vegas guy myself , but living on a green golf course with a swimming pool in the backyard and warm dry evenings could become addictive . For what we pay for a home in Noe Valley you could be living in one of the most ultra exclusive country clubs in the desert. I know someone who just cashed out of their SF house and company and had bought a residence in advance in Nevada to avoid future Ca state income tax . They went from a home on Chattanooga Street that did not have a garage and needed a lot of work to a home in Spanish Trails Country Club right on the green with pool, 4 bedrooms and 2 1/2 car garage ( the 1/2 is for the golf cart)
Now, I am a city lover myself , and jumped at the chance to go to Chicago when the opportunity was presented. Like you mentioned, the money I am now able to save is going to help me finally realize a retirement goal that seemed almost impossible when living in SF. I miss San Francisco terribly, but now can afford frequent visits to Cavallo Point, the Auberge in Napa, or some other location I would not have been able to afford in the past, but can now comfortably afford.
Without the crazy rent I can collect on my SF place, I would never consider moving out. Keeping BOTH a tech salary and collecting mad money rent is just having the best of both worlds.
I guess this is a sign of a seriously dysfunctional City: the skilled working stiffs are being bought out, while the rent-controlled long-timers get to stay as long as they want.
All that will be left one day is white buses zig-zagging between the homeless and the protected elderly.
“I guess this is a sign of a seriously dysfunctional City: the skilled working stiffs are being bought out, while the rent-controlled long-timers get to stay as long as they want.”
Well done Lol!!! What you wrote is a perfect summary of where we now are as a city.
I just saw this comparison of the 25 biggest rental markets in the US.
First : San Francisco
Last : Las Vegas
LV is indeed 4 times cheaper than SF rental-wise. Plus you usually get a swimming pool. One more check mark in the LV move column.
if SF can keep bringing in more salesforces and twitters, then this will continue. I for one hope they continue to bring in great jobs, more revenue and smarter people. It adds nice restaurants, more cultural activities, safer streets. Its good for everyone