The average asking rent for an apartment in San Francisco was $3,392 at the end of 2014, up 11 percent over the past year and 55 percent higher since 2009, but down $8 a month from a record $3,400 in the third quarter of last year.

A 0.24 percent drop over the past three months is nominal at best, but in the words of DTZ, “we see it as a sign of things to come.”  And with the development pipeline flowing in San Francisco and rental rate growth having exceeded income growth for five years, “the inevitable slowdown has become [sic].”

DTZ’s current forecast for apartment rents in San Francisco over the next couple of months: flat to slightly down.

67 thoughts on “San Francisco Rents Slip From Record High”
  1. Supply and demand. Just like we learned in Econ 101.
    Note to city officials: Allow more housing to be built. A lot more.

    1. Also: rent control sucks.

      I had an airbnb guest a few weeks back asking me whether he could stay long term, but unfurnished and at a price slightly adjusted for utilities and stuff.

      Even though the price was pretty good, I say “hell no!” There is no way this place will ever get back into the rent control nightmare under my watch!

      1. It’s stunning to me that there are landlords with well below-market rents in SF who have NOT Ellised their buildings. It’s just mass stupidity on their part. Restrictions will only get worse. They are out of their minds for NOT immediately Ellising, converting to TIC’s and 1031 exchanging the proceeds into a non-rent controlled building elsewhere – which will greatly increase their cash flow from Day One.

        Landlords who are sitting on buildings with below market rents deserve their fate, if they’re just too dumb or lazy to assert their rights intelligently.

        1. The folks at evictionfreesf have played it very well.

          Do an Ellis then find your family name showing up on a search engine along with “greedy”, “cruel” or “capitalist”. Believe it or not, but I decided against purchasing property that NEEDED to be Ellised because considered my good name was worth more than the few $100,000s I would be able to make with an Ellis. It’s a personal choice.

          1. True – personal choice. A friend of mine used to be high on the Bay Guardian’s list of “bad landlords”. He took it as a badge of honor. 🙂

          2. They will also demonstrate at your home, business and kids soccer games. They are thugs and the Gang of 4 communists are their enablers.

        2. Dumb? Lazy? You obviously have no experience with getting things approved in the city. See name link to find out what happens when you Ellis.

          1. Interesting article. True, it wins you no friends at City Hall. But for landlords who aren’t planning on doing developments that need approval, but just want to get out from under rent control, seems well worth it to follow the law and Ellis. Exchange into NNN property (or residential income property with good management in place) and double your income.

          2. Yup. This is one of the examples that came to mind. Basically you use your constitutional right, respect all the rules, but you will be punished because some people do not like your constitution rights to be exercised.

          3. EcceMoron,

            The approval was just one example. There are other events in your life where your name needs to stay untarnished. Say you’re interviewing for a position. Every HR will Google your name. You might want to join a club or a charity or any other place where your good name is worth something. Your kids might have to give your name for whatever social or academic thing they have going on.

            Well, bad luck, some idiotic overreaching busybody loser will have put you on a hit list just because you tried to do something they didn’t happen to like.

            This is public shaming of the worst kind. And the City is enabling these idiots.

        3. I too find it shocking that there are non-sociopath landlords out there. Or maybe being a landlord, of even a rent control building, is a REALLY GOOD DEAL.

          1. I find it shocking that people who don’t like being forced to rent to tenants who are paying 1/2 of what other people would happily pay, are called “sociopaths”.

          2. yup, $800 for a 4 bdrm is not nearly as good a deal for the landlord as a renting a 2 bdrm for $4876
            seems the landlord biz can be very rewarding in san francisco, for those who are wise

          3. Yes, it can be rewarding – for those who are wise. Like all investments, it can be risky too. No one can ever know the future. People building housing that pencils out when the 2 br’s rent for $4,876 might end up losing their butts if conditions change.

            And mom and pop owners who have the laws change underneath them are at risk too. Politicians love to score points on the backs of sitting ducks.

            I’m sure we have different viewpoints, but I love the snarky name, Pity… 🙂

          4. I mentioned the 4BR @ $800 because I have seen it. There was so much fat on that pig. It was a real shame that to extract this fat I would have had to figuratively throw granny under the (Google) Bus as well as the 8 other family members living in her unit who were living the life in our beautiful city.

            Yes there are 2BRs renting for almost 5K. And it wouldn’t be possible without the marvelous sacrifice of those $800/month landlords who are taking the bullets for the rest of us market-rate landlords. Their ordeal will not be in vain. I have a Mediterranean villa (on the actual Mediterranean, yes, that one) to pay.

          5. yet, a humble 2bdrm flat in SF costs more to rent than an entire villa on the French Mediterranean coast
            French pigs not so fat as American.

          6. I face an apartment building across the street from our home, and one unit has pretty much been dark for at least 8 years. I met the actual renter the other day who’s car was blocking my driveway. It turns out he is now married and no longer lives full time in the city. He keeps renting the unit for when he needs ” a place to crash in the city”. His rent is roughly 1,500 a month, but purchased a home down in San Carlos to be closer to work and for the space needed for their child and for the schools. The apartment is just “too cheap to give up”. He apparently lets out of town friends stay there, but refuses to try any short term rental service as he “does not need the hassle”. If he uses it about 4 nights a month it is a better deal than a better grade hotel room.

          7. Yup, Pity.

            I would like to thank again SF rent control laws without which none of this would have been possible.

            The PITI on that villa is roughly the rent of a 2BR in the city. Plus I face south, have a nice sea view, enjoy gorgeous sunsets all of this on an 1/4 acre plot (a rarity so close to the coast), and 5 minutes stroll to the beach. This is my summer place now. Next year I am digging a pool.

            Dear SF, please never change. I mean it.

          8. Yes, the villa does look nice, congratulations. More relaxing than the bustle of the Castro. Perhaps I will rent it after you add the pool. Your neighbors across the street and up the hill have even larger lots and grander views. I guess like in San Francisco the better view gained from being higher on the hill is at the cost of being further from the pleasures of town and water. Does the noise from the tennis courts bother you much?

          9. Pity,

            Looks like someone has done his research, lol. I am up from the tennis courts 2nd row and enough foliage. No noise except if the wind blows from the south. The tennis court is not visible but ensures the view while being a bit low. I considered living a bit higher but since I love cycling (and not having to own a car) that was a good compromise. The 2 new houses across the street are really nice. The one with the terrasse pool has an Ipe floor that you can adjust up or down. Kid height, adult, dance floor. I want one though the cheapstake in me says go simple.

            Darn you know about the Paris place too then. That one is rented year long except for the summer. Remnants of the shopping spree in the last RE downturn.

  2. Agree fully that more supply reduces prices, but in this case, the amount of new supply hasn’t been that much. Much of the new supply is still under construction or yet to begin construction. I think we simply reached the limits of demand. Wages and jobs have risen quickly, but rents have gone up 10% a year for 4-5 years — it had to end soon.

    1. It seems like what we are seeing is more that there is less demand at high prices. Not lower prices due to higher supply. Supply hasn’t come anywhere close to keeping up with population growth, and it won’t keep up any time soon, barring an econopocalypse, or mass exodus of NIMBYs.

      1. Exactly. The “demand” for $5500 2BR new condos is saturated. Normally priced units will still rent muy rapido.

  3. At the same time, the supply of potential renters willing to pay 5K for a 1BR is pretty limited. We have to reach a plateau at some point.

  4. To be honest, prior to my move to Oakland I started seeing a lot of places on craigslist in SF that were just be re-listed every day or week for a month or more. Hell, I just looked and I still see some places I saw when I looked months ago. It’s almost like landlords know the big money is out there, and refuse to lower their asking rent even to their financial detriment. Also does anyone think Bayview is getting the rents they’re asking? SF is just a weird place man, I’m not too sad to be out of the rental game there.

    1. Well, renting is not always a science. Sometimes you’re going to have perfect timing and have 20 very good candidates at great prices. 2 weeks later it’s all quiet and lasts like that for 2 months. As a landlord should you accept 10 or 15% less than the price of 1 month before just because you want to maintain cash-flow? A wrong move can get you stuck with a low paying tenant forever.

      In a rent controlled city like San Francisco, the original rent is pretty much the ONLY pricing choice you’ll ever get. The rest is decided for you, whether you like it or not.

  5. I wonder when this will apply to commercial rents too. There seems to be tons of empty ground-level commercial space in all the new buildings downtown and up Market Street, and there was an article in the Chron today about how hard it is for non-profits to find affordable space. What is going on there – are the landlords holding out for higher rents, or the spaces not desirable, or are there just simply more spaces than businesses? These are going to look increasingly tacky if they don’t get filled soon.

    1. Mission Local had an informative article about this issue a while back (see my namelink.) The retail spaces at the 19th and Valencia condo building that they mention have since filled up nicely. The lag time is mostly due to realtors prioritizing filling the apartments first and other permitting roadblocks that take time to deal with.

  6. Agree that this is moderation in demand, not the result of new supply. Prices can only go so high, so fast before they flatline a bit. To really bring them down takes economic chaos (which I’m sure most of us would rather not relive…again…so soon…) or increased supply. Significant supply increases are not going to happen in the current SF landscape, so don’t hold your breathe for any real rent reductions any time soon. If you are a landlord, this is of course good news. As for the renting majority, they seem content to keep shooting themselves in the foot then complain about it at the top of their lungs. What can you do?

  7. @Sam…yes. I rented a 2br plus office with closet and doors but no window (interior room) with views and parking in a 90’s building for $3000 late last year. Another person I know rented a decent 3 bedroom house to some tech employed husband, wife, and small child for $3400. I also rented an updated but funky victorian close to the water treatment plant for $3700. A quazi 4 bedroom, 1 bath. Deck. Rents just as home prices are a value compared to other areas of the city. And are very close to being on par with outer Sunset. I have found most interest from folks who are newer to San Francisco and do not have the same notions of Bay View compared to long timers. BTW, I also own and live in a Bayview house.

  8. Well, the proof is in the pudding re the statement of Norton’s Empire. The 1000s of landlords who have owned for a long time and are paying Prop 13 taxes on that decades-old basis are getting a really good deal by renting at rates that re-set to the market (unlike their property taxes) with every vacancy. While it may be the case that every one of these landlords is a drooling idiot, Occam’s razor suggests that they continue on as SF landlords because they like the deal they have. Spare me the exceptional horror story of the mom-and-pop with one unit rented out to someone for decades at RC rents (I agree that that lone hypothetical landlord with a tenant paying $800 for a 4BR should Ellis today). The vast majority of SF landlords are doing from fine to fantastic with the RC/prop-13 status quo.

    I agree that those landlords who want even more are not sociopaths because of that fact. And I agree that rent control is a poor and counter-productive policy. It never fails to amuse me that landlords continue to scream about rent control when they are by far the biggest financial beneficiaries of the policy.

    Small correction – it is not a constitutional right to Ellis and evict. The supreme court has expressly held so. That is a right created by statute (the Ellis Act).

    1. All quite true. Any landlord who is “screaming” about rent control would be much better off talking calmly with a good attorney, and using existing law to alter their situation for the better. Now, rather than later, as those laws are subject to change.

  9. I have the prefect solution for all landlords to get around rent control:

    It’s an ingenious plan to get around rent control. If you don’t want to rent rent-controlled property to renters, don’t buy properties that are subject to rent control.

    Shhh, here’s the little secret, and only tell other landlords, because we don’t want the commies to find out, but landlords can get around rent control by only buying properties that fall under rent-control.

    Mum’s the word!

    1. And for those who already own rent-controlled units, sell them! Problem solved – you no longer have to deal with rent control.

      But, of course, SF landlords cry crocodile tears. They love the scarcity and elevated rents caused by rent control. They just don’t want their units to be affected. Let’s call a spade a spade here.

      1. “And for those who already own toxic waste, sell it! Problem solved – you no longer have to deal with toxic waste.”

        Someone doesn’t really understand how toxic waste works. Did I say toxic waste? I meant rent control. My bad.

    2. Hey, genius, many people followed your advice, and bought SF buildings that had NO rent control – only to then have rent control applied to them. Duh.

        1. Many buildings were inherited or are still owned by the person who purchased it prior to the 1980s when rent control was imposed.

        2. Oh, yeah. I bought a 4 unit building to live in in 1993 – because there was NO rent control on owner occupied buildings with 4 units or less. Based my purchase price on that fact. Then in 1994, my building was put under rent control.

          The most fun part was that I had a tenant living in one unit who was dying of AIDS. To be a nice guy, I dropped his rent so he could stay until he passed. I dropped it to 25% of market value – he only had 6 months to live. I also let his caretaker moved in with him – he needed that day to day. When he died, his caretaker decided to stay – and claimed the right to the same low rent at 25 % of market value – and he got it. It was the new law.

          Sux, eh?

          1. Agreed – sux. But, how much has that place appreciated? 400%? And your Prop 13 property taxes are up by only about 50%? and how much has your total rent roll increased on all units — 400-500%? Like I said above, sell (or Ellis) and you don’t need to be “burdened” with rent control any more.

          2. What does appreciation have to do with anything? We are speaking of people who are in the landlord business. Are you going to say to dentists “Sorry we totally over-regulated the dentistry industry and you are probably losing money. Like, a LOT of money. But hey your loss is tax free! Now I am sure you can sell your outfit. You are ahead, now please smile. Wow you should do something about those teeth.”

          3. Got it. It sux to have bought a building that has increased in value by 400%, when property taxes have increased 1/8 as much, and collected rents have increased 500-600% — because one MIGHT have increased rents by 700%.* Crocodile tears.

            * In reality, without the scarcity created by rent control, this landlord would probably be collecting substantially lower rents. Buy, hey, rent control sux, you know, except for every one else.

          4. Taxes do not mean nothing when you are losing money. Appreciation means nothing when you were planning to keep your property and pass it to your heirs.

            Also where are you pulling the “collected rents increased by 500-600% from? That doesn’t really make sense since if the average rents are so close to the “potential” rents then I think there wouldn’t be any debate. Tenants would have only a small benefit “on average” and wouldn’t fight tooth and nail to keep rent control. The energy spent to keep these laws is proportional to the unjustified freebie many are collecting.

            Yes, if rent control were to be repealed, average collected rents would certainly be lower. Some people would be mechanically unable to keep up, some people with better income would move into SF to compensate, many people would be shuffled around to have their housing fit their income. Granny renting a 4BR for $800 would move to a smaller place, and a large and better off family would move in.

            How much would be the hit on the average collected rent? Hard to tell. But I think 20 to 30% wouldn’t be too wild a guess. After all the median income would probably reach 100K and the median place would be rented at 2500 to 2800 instead of 3500 today.

          5. I meant 400-500% increase in rents since 1993 – not 500-600%. I got that from experience – I’ve lived here that long and know what rents have done. For example, I rented a great, large 1 BR on Nob Hill in 1993 for $575/mo. Easily go for 4-5X that today.

            Sorry, no sympathy from me that one’s building has appreciated by perhaps millions of dollars while your property tax assessment has just ticked up a little (damn laws – oh wait, that’s a good one . . . for me), but you don’t want to sell because you really want to remain a landlord or you really want to leave the building to your heirs. Just can’t summon up any tears for that one. Just sell the place if you’re angry about that pesky rent control and leave the millions in your will. I think your heirs will forgive you.

          6. I have a building owned well before 1978. I leave it mostly unoccupied now as it is beautiful and tenant scum just don’t deserve to take it over indefinitely. It is really too bad that the law does not allow for middle ground because I could care less about the highest rent. I would rather rent for a reasonable rate, to good people for a defined period of time. Instead, I just don’t play the game and everyone loses.

          7. JR, you’re confusing market rent with actual rents again. Someone who moved in 1993 and has stayed put probably pays only 40 to 50% more today, when market rents have effectively increased by at least 400%.

          8. SFS: “Appreciation means nothing when you were planning to keep your property and pass it to your heirs.”

            Okay SFS, please walk back off that ledge. You are getting into a dangerous position of saying sillier and sillier things rather than admit one of your previous comments was wrong. When you get to the point that you are saying it does not matter to someone if an asset appreciates or not because he is planning to leave it to his heirs, you are starting to talk crazy. Do you REALLY believe that it does not matter to someone if the asset they are leaving to their heirs increases, decreases or stays the same in value?

            So kids, you get your choice of a house that is worth $100,000 when i bought it and will be worth $100,000 when you inherit it, or one that was worth $100,000 when I bought it and will be worth $500,000 when you inherit it. Let me know if you have a preference because it doesn’t matter to me.

            (full disclosure: I oppose rent control because of the economic distortions it creates, not because of any argument about how horrible it is for landlords and find that arguments divorced from reality weaken the case against it)

          9. Rillion,

            I get your point and yes appreciation is always good to have. But should it be the center of a decision and overshadow all other aspects of the landlord business? I don’t think so. In French there’s a saying that “les conseilleurs ne sont pas les payeurs”, or “people who give you advice are not the ones footing the bill”.

            Yes you can look at your net worth instead of your income statement, and everything looks good on paper, and you accept to take a monthly loss because you’re making it up in net worth. But isn’t that how so many got into trouble in the first place? People who didn’t give a hoot about cash-flowing because a HELOC would pay the difference. It works for a few years, but when everyone applies the same tricks, the rules change and the game stops very abruptly.

            Yes SF landlords see outsized appreciation, but artificial scarcity (prop 13 for instance) partly created this appreciation. In 2009-2011 we saw something unheard of: prices went down! And at the same time the economy was down the drain. This always go in lockstep. 2 years before you were enjoying a good job, your property was worth a lot but your rentals didn’t pan out. No big deal. Then the Big One hits and you need the money but property values tank. Now your property’s negative cash flow becomes a really big deal. Welcome to the fire sale.

            Last, when someone grandstands and says things like (barely paraphrasing) “all rent controlled landlords should just stop whining and cash out” that’s like saying that everyone should get a better job to make more money. It looks obvious at first but then you ask yourself how this would work exactly…

          10. “But should it be the center of a decision and overshadow all other aspects of the landlord business?”

            No and no one has suggested or argued that it should. You are the only one that argued from an extreme position. You created a straw man, a hypothetical small landlord that has negative cashflow from his building in SF that wants to leave it to his heirs, and seem to be somehow that rent control should be viewed through its impact on this one class of individual with no data to show how common or uncommon this scenerio is. You are even posting it in response to someone that is sympthatic in his own right (bought in an unrent controlled building in 1993 right before rent control was extended to that building in 1994) but that person has made no claims about either being cash flow negative or not carrying about how much his building his appreciated since 1993.

            I agree with EcceMorons that his situation sucks, but I doubt its put him in the poor house. I doubt if he looked at the amount of money it would cost him to rent his own apartment (owners equivalent rent) plus the money he is taking in from the rent controlled units that he isn’t better off owning that building right now than not owning it. Plus it has appreciated since 1993, even if he ended up overpaying in hindsight because of rent control being extended to it a year later.

            Most of the stories of landlords getting screwed by being having a monthly loss came about from individuals (or businesses) overpaying for rental properties during the bubble when they based their calculations on being able to turn over the longtime renters and replace them with newer higher paying tenants. Then when the market declined they were over-leveraged and quickly discovered that they were not able to turnover the tenants fast enough using legal means. But I have zero sympathy for those that made a risky investment based on unrealistic assumptions.

            I have seen no data or even real antidotal evidence that leads me to believe that problem you are point out is actually happening (long-time owner of a small number of rental units or someone that has inherited property and is losing money every month on the units, prop 13 and its related add ons keep this from being a real issue imo).

            Finally, to address your most recent hypothetical: “In 2009-2011 we saw something unheard of: prices went down! And at the same time the economy was down the drain. This always go in lockstep. 2 years before you were enjoying a good job, your property was worth a lot but your rentals didn’t pan out. No big deal. Then the Big One hits and you need the money but property values tank. Now your property’s negative cash flow becomes a really big deal. Welcome to the fire sale.”

            This isn’t a one of the longtime owners previously being addressed, or someone like EcceMorons that had rent control imposed on him after he bought the building. The landlord that is in trouble in your scenario is someone that recently bought a property that would have been barely cash flow positive at the time of purchase. So they would have been counting on either future rent increases (risky since they would have known the building was rent controlled when they bought it) or they were hoping for future appreciation of the asset (which you have argued doesn’t matter). So yes, they would have been in trouble when the economy tanked and the housing market crashed in 2009-2011. But so would anyone that bought a property they could barely afford then lost their job during that time frame. They were all welcomed to the fire sale, rent control or no rent control, landlord or homeowner. The person in your hypo took on too much risk. I fail to see how they are deserving of any more sympathy than any other investor that took on too much risk during the run up to the recession and I fail to see how that is an indictment of rent control and not buying more property (rental or otherwise) than you can afford.

          11. Shoot, Socketsite timed out my lengthy response. Too busy to retype. But I’ll give you one example: Castro 2011, almost a neighbor. A landlady owns a TIC with a tenant paying 700 for a 1BR. She’s been in a home in Palm Springs for years and with taxes, maintenance / HOA she’s slightly in the red. She’s eating away at her savings and the son is told he has to step up soon to make up for the difference. He decides to look into her finances, sees the TIC situation and decides to pay a courtesy visit. The 55-year old male tenant had morphed into a bunch of 20-something subletters.

            I have seen a ton of stories like this one while looking for buildings. Maybe it’s because I try to chase value and that these stories are more likely to be found in this segment. But I am seeing them.

          12. OK, since I am able to post. Another point: the key to being a long term landlord is precisely not having to sell when the times are tough. If the numbers do not work in the rental return, then when the rough patch comes you are more likely to sell. This has been one of my principles in the 20 years I have been in this. Then I see myself in 20 years and know I will be weaker, less alert. The decisions I make today will have a pretty impact on my future, and chasing rental ROI is the key. If the ROI is there, the equity is usually not very far behind.

          13. Last, yes the example of the RE collapse and the speculation that caused it was an example of the opposite of the long-term rental ROI strategy. Speculators in it for the quick flip will not care that much about the rental returns. And someone who wants to do this long term should put rental ROI first before equity building. That was my whole point.

  10. I had a heated debate with my leasing agent when she was marketing my renovated units. Since she owns investment property in the city (both inherited and acquired,) we argued over obtaining the highest possible rents and getting tenant turnover vs. going slightly below market and getting nice tenants. She believed most tenants are highly transient anyway but I thought the economics were better without constant churn. Now her listings have sat for months. Go figure. To each their own.

    1. This is why I love airbnb. I can see how much traffic I get per day and can adjust the price accordingly. Traffic is almost always reflected in enquiries and bookings.

      For instance one day I had slow traffic for a week and was 2 weeks from having my place empty. I decreased my rent by a token amount and 2 days later I could see my views doubling, and a booking a few days later. Another time I put what I thought was a cool picture as the thumbnail pic. Traffic all but disappeared. Very humbling.

      I assume your leasing agent probably has access to metrics. But I’d check it out with her.

      1. Doubt it. Otherwise she would be advising her clients the correct rental amount and not sell them the inflated amount causing the listing to sit. I know she has to bake her commission into the asking price and try to create a more upscale neighborhood.

        Airbnb is not for me. I have other things to do and don’t want to play hotel manager. I enjoy reading about your experiences though.

          1. Okay, you can run it for me after I renovate another unit sometime next year. I yelled at my contractor yesterday and he threatened to quit. My response was, “next contractor on my waitlist.” He came back today with an apology and he STFU. He needs to starve for a year.

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