While the average asking rent for a market-rate apartment in San Francisco has hit a record $3,400 a month, up 9.8 percent over the past year, the largest percentage increase has occurred in Oakland where the average rent now measures $2,500 per month, up 17.6 percent over the past twelve months. But there could be some relief in sight for renters in San Francisco. And growing pain(s) for those in the East Bay.
With a strong pipeline of new developments racing to hit the market in San Francisco, and at a pace which will ramp-up over the next 18 months, the apartment vacancy rate in the city has ticked-up for the second quarter in a row to just under 5 percent and the pace of rent increases has slowed. And with rents having increased far faster than incomes over the past five years in the city, Cassidy Turley is continuing to forecast “an inevitable slowdown” in San Francisco rents.
At the same time, the vacancy rate for apartments in the East Bay has dropped to a record low of just under 3 percent and the development pipeline in the East Bay is a few years behind San Francisco’s. As such, expect rents in the East Bay to continue to climb, and at a rate which will likely accelerate in the near-term, driven by those fleeing more expensive markets around the bay and a likely in-migration of employers.
Do you have any numbers on expected # of new rental units and condos opening in 2015 and 2016?
[Editor’s Note: 6,000 Housing Units Under Construction In San Francisco.]
thanks for the link. Is there any granularity on rentals vs. condos?
SPUR ran some numbers and decided SF needs 5k per year, every year, to stop price rises. I think the effects of 6k units would be very short. This cycle isn’t going to end until the next tech downturn, which will come at some point in 1 to 4 years…pf the marquee names in sectors I’m familar with, SF.companies like Square and Zynga (among others) aren’t healthy, and venture funding will drop off for startups without revenue. Medium term, Yahoo and HP will probably become much much smaller.
In a city like San Francisco where the market is done at the margins, I do not think average incomes matter as much as the incomes of the newcomers. Someone working for a non-profit making $50k should not be put in the same basket as a techie at $200k. The former probably lives in a rent controlled unit and the latter closer to market rate.
5K was SPUR’s “best guess”, not the conclusion of some authoritative study. It has appeared in a blog post by Gab Metcalf and some other SPUR pubs, but AFAIK they have never backed it up with any claim of being based on more than a guess.
To be fair, it is only one element of their proposal.
Seems that for market-rate rents in SF, the elasticity of demand is much greater than the elasticity of supply, and the most rapid changes in the former are driven by forces (VCs, IPO stock market, …) that aren’t affected much by SF policies.
Good catch. Yeah. But I think (based on nothing but my gut, like everyone else here) that it’s a good number. If it’s not a good number, what is? We might have a test of this 6k number and we can talk about this again in a couple of years.
With know many of the new units are slated as rentals, but I’m sure they are also mapped as condos in all cases. So…i,wonder how many bldgs will be eager to switcheroo and sell off units? They can just mix it and sell off some units. In other words, how committed are ANY of the owners to having their building as permanent rentals???
A growing strategy is to keep as rental through the warranty period – 10 years – then sell condos. We’ll see if that pans out or not.
LOL @ interpretation of “relief.”
“The most unaffordable housing market in the U.S. is going to get more expensive at a slower rate.”
SPUR & Gab Metcalf do nothing.
Is Tower 2 of One Rincon leasing yet? I always thought that would have some short term impact.
Yes – Tower 2 is leasing. First people moved in at the end of August.
If they can build 6000 next year, it would be just as easy for landlords to get together and remove 10000 from the housing stock by way of Ellis. It is time to teach the communists that you cannot constrain markets.
“it would be just as easy for landlords to get together and remove 10000 from the housing stock by way of Ellis”
Of course, this would be a criminal violation of federal antitrust laws. Kind of ironic in a post about “constraining markets” . . .
Anti-trust? Really? I think there would be a better shot of pinning Tenderloin Housing on R.I.C.O. charges than a few landlords exercising their right to refuse rent. I think reasonable legal minds differ on this point Mr. Dobbs.
Yeah, Hitman, tell that to the guys sitting in federal prison for conspiring with a handful of their buddies to buy foreclosures for a few thousand bucks less. No reasonable legal mind is going to differ on your hypothetical landlord combination. We happen to live in the district with the most aggressive antitrust enforcement in the country, and probably the world.
Besides, I was just remarking on the irony of your post on how one cannot constrain markets, in which you advocate that landlords unlawfully constrain markets.
I think there would be a LOT of money to be made by a law firm (or a consultancy firm), who mailed a letter to EVERY owner of pre-1979 2-6 unit properties, giving them an estimate of how much they could sell their property for (per sq ft) if they were vacant TIC’s – along with an estimate of how much it would cost them to Ellis.
A LOT of eyes would be opened, and I suspect a lot of passive/not-up-to-date owners would do what is in their best interest.
And, of course, it is a lot cheaper to Ellis now than it was a week ago, given the federal court decision that went into effect enjoining the ridiculous pay-outs. Now is the time.
The problem with those guys is that they went across the street and kept everything in hidden notebooks. What they should have done was form an LLC with rules governing the allocation of profits.
Is it really constraining a market if the unit you remove is no longer part of that market? If I Ellis a building and I can no longer rent it out, the rest of the market is constrained because my building is no longer in the marketplace. I am advocating that individual landlords break the system in order to fix it. I am not suggesting that doing so together will allow us to profit by coordinated action. We would profit from the laws of supply and demand if we chose to TIC or after 5 years when rents rise to FMV but that is not the same as fixing prices. This is a lawful protest and response to the overreaching legislation of the commies on the BOS.
I think I can say all of this safely. If this was really Anti-Trust worthy, everything I am saying could potentially be construed as Conspiracy…. I’ll take that chance.
I am keeping 5 units off the market.
Until the the judges ruling against Campos is reinstated. Campos is doing nothing for housing – just hurting most folks.
I would join w other LL’s to keep units vacant until the BOS reverse the rules.
How do any renters expect mom & pop landlords/ small property owners to comprise their property when laws are all one sided.
The more tenants push for crazy laws, the more landlords remove units – higher rents for those who want them.
I don’t want crazy rents I just want decent control over property I worked to buy.
You talking about the crazy ellis act payouts? That was reversed, so regular ellis payments are Still in effect unless the city wins its challenge to the law (doubtful.)
Prop G will probably pass, and be challenged as well. And I’m sure the new buy out regulations will get challenged as well.
“Yeah, Hitman, tell that to the guys sitting in federal prison for conspiring with a handful of their buddies to buy foreclosures for a few thousand bucks less.”
Did anyone ever really go to jail for that? I am 99% sure the guys who got dinged for it in San Francisco got a slap on the wrist and moved on. They are still out there every day.
If there were any market-altering participants on the courthouse steps, it was the clowns from “Occupy the Auctions” who would show up and try to intimidate bidders into leaving and posting their pictures on the web etc… Ironically, it is much easier to buy a house for cheap when one is surrounded by screaming protesters, than in a comparatively civil jurisdiction outside the (cr)ay area. At least, that’s what I heard anyway.
I have bought on the steps and I know the game. It was better for the public before – now it is only better for the banks. Go ahead – go down to one of those Auction.com shows held at the local Holiday Inn. If you buy there, you are most likely getting played by the shills, the ringmen and the professional auctioneers that will have you bidding against the soda machine across the room. Before you figure out what happened, your cashier’s check will be cashed and you paid very near retail pricing. The real players never got pinched.
Yes, it is generally true in any context that most criminals do not get caught. But that does not mean that they did not commit a crime. I suspect that landlords, with a lot to lose and little to gain from it, are not going to be keen on the idea of unlawfully colluding to take rental units off the market and risk prison time. But perhaps landlords are not as smart as I believe. These foreclosure bid-rigging guys went to prison and paid big fines for very little upside — couple hundred thousand total or far less in some cases. So I don’t doubt that people do not always rationally weigh the risks in deciding how to conduct themselves.
The federal investigation of foreclosure bid rigging in Northern California is ongoing. Just last week, a federal grand jury in San Francisco returned an eight-count indictment against five real estate investors for their role in bid rigging and fraud schemes at foreclosure auctions in San Francisco and San Mateo.
From the DoJ:
“To date, 47 individuals have agreed to plead or have pleaded guilty, as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.
…
Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. Each count of mail fraud carries a maximum sentence of 20 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the mail fraud schemes. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million.”
No one has provided an example of a trustee sale bidder getting jail time for collusion. I don’t think it has happened in San Francisco, though I could be wrong. An artificial discount is pretty difficult to quantify, and that’s the whole point of having a courthouse step sale – to keep the process open and transparent to anyone who wants to participate. One real bidder can show up and dash the hopes of any fractional bid rigging syndicate.
My expectation is that capital C “Collusion” will be unnecessary for the market to move toward more Ellis-to-TIC outcomes by landlords or developers. When the money is laying around in the streets, someone usually finds a way to pick it up. Things will get ‘worse’ for entrenched renters before they get better. Peak rents in 2016.
“Individuals who have pleaded guilty so far, beginning in 2011, are cooperating in the ongoing investigation and the Division has requested successfully that their sentencing be delayed until after their cooperation has been substantially complete. Accordingly, there have been no sentencings yet, and with this recent development, it appears sentencing could be delayed into at least 2015.”
According to Bob Connolly, a former lawyer in the Antitrust Division of the US DOJ that tracks various cases including these in Northern California (namelink).