The average asking rent for an apartment in San Francisco ticked up to a record-setting high of $3,458 per month in the first quarter of 2015, up 2 percent since the end of 2014 and 13 percent higher versus the same time last year.

The average asking rent in San Francisco has increased 56 percent since 2009.  And with the development pipeline flowing and rental rate growth having far exceeded income growth for five years, DTZ maintains “a slowdown is inevitable” but can’t decide if rents will simply flatten or go down.

At the same time, the average asking rent in the East Bay has increased to $1,947 (up 14 percent versus the same time last year) and the pace of growth is “accelerating,” while the average asking rent in San Mateo dipped to $2,680 per month last quarter but remains 14 percent higher year-over-year.

Comments from “Plugged-In” Readers

  1. Posted by Hitman

    How is that “rent control” working?

    • Posted by BayviewSF

      “rent control” means super high rent for newcomers, absurdly low rent for old timers.

      • Posted by Hitman

        Are laws meant to serve the whole or a few?

        • Posted by San FronziScheme (formerly known as lol)

          Simply because something is used by everyone doesn’t mean it has to be provided under cost. Everyone uses power and everyone could do with lower power bills.

          You could provide power at fixed 5c per kwh for the majority and charge market value to the rest. What would the consequence? Non-optimal use of a commodity which will lead to scarcity. The non-protected customers will fight for the remaining kwh that the protected ones didn’t consume. And if we are not adding capacity, we can have an ENRON-styled distortion.

          • Posted by Jake

            The California PUC is considering changes to the PG&E electricity rate structure because of a finding that some rate payers pay less than cost; from a recent news report: “commission findings indicate that residents in the lowest tier are not only paying less than the utilities for electricity but their use is being partially subsidized by the payments of customers in the higher tiers.”
            ENRON gamed flaws in the deregulation of power in CA and some other states. It didn’t have anything to do with not adding power generation or distribution capacity. Perhaps it was due in part to a lack of oversight capacity. Without rehashing that sordid history of venality/legality issues, it stands as a cautionary lesson in abrupt deregulation of vital markets.
            FWIW, there are many vital/utilitarian ‘things used by everyone’ that are provided to some at below cost as a matter of law, including electricity, telephone, medicine, education, fire, police, public defenders, milk, …. Sadly, the collected works of Ayn Rand are not among these.

          • Posted by SFrentier

            The difference is that the existing housing market naturally offers lower priced rentals. Move to a cheaper location. By taking a very small location, like SF, and imposing RC, you get the markets distortions that we have now. And, subsidized utilities, medical care, etc. are means tested. Not so with RC. Plus, those services are provided by large firms. Rent subsidies in many cases are provided by private individuals. You can’t compare basic service subsidies with SF’s RC.

          • Posted by San FronziScheme

            Jake,

            You read a bit too much in my ENRON comparison. The point is that if you have inept regulation AND do not provide the tools to build sufficient supply, the “fringe” market will go bonkers.

            To be true, I am for market regulation, because some things are too precious to be fully non-regulated. Housing has to be regulated. But it should be done in a way that helps the market provide cost effectiveness. Right now it’s:

            1 – I like you and you voted for me – here is some soup
            2 – I do not like you, even if you also voted for me – no soup for you

          • Posted by anon

            But we are adding capacity. Plenty of new construction, none of which is under rent control.

          • Posted by Jake

            The only election George Washington ever lost was one when he refused to buy whiskey for the voters (namelink). He never made that mistake again. Modern politicians have more varied and subtle ways, but the voters expectations are not to be trifled with.

            As for moving to a cheaper location, like where, San Mateo and Marin counties where the lack of rent control has created an oversupply of cheap rental housing? The reality is that politics in an essential part of land use, always has been and will be. Don’t like the popular will of the people of SF as expressed by rent control, move somewhere else.

            FWIW, there are massive gov’t subsidies that are not means tested at all, including rural electrification, suburban road networks, and prop 13. By contrast, more pork is grown in Congress than in Iowa. It mostly goes to those with the most means not the least. So, yeah, the US has plenty of ‘means tested’ gov’t subsidies, those with the most means get the most subsidies. Thank you Exxon, Koch Industries, Citizens United, ….

          • Posted by San FronziScheme

            Yes, there’s new capacity, but very insufficient for now.

          • Posted by SFrentier

            “As for moving to a cheaper location, like where”

            Ummm…..Oakland. Richmond. Hayward. And you can Bart over to your SF job too. Easy peasy, even if you work in SF. Sky’s not falling folks.

          • Posted by Jake

            Of course the sky isn’t falling, and neither is rent control. It will be around in SF as long as the voters in SF and CA want it and they do overwhelmingly, though I disagree with them.
            Thanks for missing the point that the lack of rent control in Marin and San Mateo hasn’t created low rental rates or high availability. Look, you may not understand that rent control actual keeps prices lower for non rent control units in SF, but it does. I’ve explained how it does several times on SS and provided links to studies that walk through it. And yes I understand that you can make money even without understanding this slightly complex economics or being pleasant. More than one way to skin a market.

          • Posted by Brutus

            The real issue isn’t rent control (in SF or the remainder of the Bay Area), but rather extremely restrictive zoning and a lack of a rules-based approval process.

            If San Mateo or San Francisco said tomorrow that these X parcels have Y rules that must be met for development, and approval will be granted in one day for any proposal that meets these requirements, we’d see a boom in building (even without much of a density increase allowed – if we increased density allowed we’d quickly outpace Houston in units under construction).

          • Posted by SFrentier

            Well jake then you must be a unique genius, because you stand alone in the belief that rent control lowers rent in non RC units. You may site a study or two, but academics who have spent a lot more time and resources than you studying RC can site dozens of studies showing the exact opposite effect. For you to try to reinvent the wheel as a layman is laughable, which is why I don’t take you seriously.

            And for the record I don’t mind RC in SF, because I’m smart enough to know how to work it to my advantage. Just like renters politicize the issue by voting for those who will enhance their financial advantage, I do the same. But if we want to be honest about its effects, there is no question that it leads to many negative effects on a city’s population, which have already been discussed ad nauseam here.

          • Posted by anon

            Brutus is right. Rent control is one symptom.
            But the real cause is that the people who vote are the people who are already in a city. High prices for newcomers only affect newcomers and those that are priced out never become voters. This drives all sorts of supply limiting policies.

          • Posted by Jake

            It doesn’t take genius to have read enough of the literature on rent control to understand that your naive view is thoroughly discredited. And I am certainly not alone in my understanding, as it comes directly from widely cited definitive studies.

            The real joke is on you because their findings are the basis for a much more powerful argument against rent control than the naive tales you spin. If you ever want to persuade people that don’t own rental property that it is in their interests to phase out rent control, you should learn how rent control depresses prices for all property, both RC and non-RC, both residential and commercial. That reduces the potential ROI for developers which over time means less supply and thus less availability. Neighborhoods are more run down and underinvested than they would be otherwise, not just the RC properties in them. Less return, less investment, lower prices, less supply…effects broadly felt in the community, not just by the owners and tenants of the RC units.

            For anyone interested in actually understanding these mechanisms instead of SFRentier’s simpleton nonsense, the best study to start with is “Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts” by Autor, Palmer, and Pathak. If you google that you can find versions of their academic paper as well as links to most of the related literature.

          • Posted by Chief Ruffled Feathers

            Nobel Laureate Paul Krugman thinks, actually, it is as simple as rent control in San Francisco being a bad idea. That nearly all economists agree that rent control is a bad idea. And that no one listens to them.

          • Posted by Jake

            The issue isn’t who or how many people think rent control is a bad policy. Everyone can think it is “bad” or at least not like it and still never do anything about it. The issue is how to motivate enough people to move towards a better policy and what the transition to a better policy would be. Same for prop 13 and other “draconian” laws with increasing bad affects on the economy. It is easier to get agreement if you can minimize the costs to undo the “bad” and that is more likely if you understand the mechanisms you are trying to undo.

          • Posted by San FronziScheme

            Jake, the ideal system would be a rent subsidy funded by the taxpayer. Since taxpayers are also mostly voters, I am certain they would not agree to a subsidy on the scale of the current monstrosity (at least $2B in subsidies from landlords to tenants right now). It would probably be in the range of 10s of Ms, and maybe 100s of Ms if they lay it right.

            But the reality is that many underserving freeloaders will hurt. You can see them here throw fake arguments and bogus numbers and misplaced comparisons to try and defend their entitlement. Then the last resort is “yes we know it’s bad but what’s the alternative?”

            Well, the alternative is to pay for what you get and where you can afford it.

          • Posted by anon

            There’s some truth to both what Jake and others are saying. It’s not that the laws of supply and demand are being violated, what’s going on is that under rent control you get lower quality product (rental units) than would otherwise be provided.

            For some people the tradeoff of a older, less maintained lower quality unit at a lower cost is one that they would gladly make. So this begs the question of, if there’s demand for low quality at low cost why wouldn’t the free market provide it? As companies such as Wallmart have shown, that market has no problem serving the low end low cost segment. But regulations such as modern building codes, minimum unit size, other regulatory costs and maximum occupancy regulations make it impossible to provide rent control quality housing under free(but actually not so free) market. Some of these regulations might technically apply to rent controlled units, but practically the tenants are unlikely to complain and there is little enforcement.

            Another way to think about it is that people gladly buy used cars every day, but it would be legally and practically impossible for a major auto manufacturer to sell new cars at a used car quality level.

            Rent control has many other ill effects and market distortions, so on balance I don’t think it’s good policy. I’m just explaining why there is a low quality/low cost segment of the market that is served under rent control, but would shrink or go unserved without it. And that the free market for housing is very far from free so it’s incorrect to blame regulatory side effects on market failure.

          • Posted by SFrentier

            Per jake: “If you ever want to persuade people that don’t own rental property that it is in their interests to phase out rent control, you should learn how rent control depresses prices for all property, both RC and non-RC”

            This is wrong on two accounts. One, people benefiting from RC obviously want to keep it. It’s the new people moving in who pay the premium rents. Two, RC does not depress all prices. On the contrary, it raises the marginal rent on new construction and newly vacated RC units. That’s obvious.

            “That reduces the potential ROI for developers which over time means less supply and thus less availability.”

            No, because new developments are not subject to RC.

            “Neighborhoods are more run down and underinvested than they would be otherwise, not just the RC properties in them.”

            This certainly isn’t the case in SF, where newly vacated RC units are almost always renovated to get the highest rent and best quality tenant. Or they are taken off the market via TIC, short term rental or left vacant.

            The studies you quote reflect non gentrifying, dead cities, either due to location or time horizon of the study. Basically meaningless (and sometimes completely opposite) to the circumstances in SF. But keep telling us how smart you are. (And, you never answered where/if you went to college.)

          • Posted by Jake

            Per SFrentier, Boston and Cambridge are “non gentrifying, dead cities” and have been for the past 20 years.

            Come on, your entire post makes it clear you didn’t even bother to read the study I recommended and are just rehashing the same simpleton statements you’ve made many times before. It doesn’t take much smarts to see that.

            Are you always going to be the guy that brought a tic tack toe set to a go tournament, or are you going to set aside your “that’s obvious” facade for a few minutes and take a chance that you may be able to learn something new?

            If you don’t want to plow through the original paper I mentioned above (warning has math), there is a brief summary version, published by the freemarket loving Cato Institue, that touches the main points relevant to SF (namelink), and it concludes:

            “we estimate that the total impact of rent-control removal on the value of Cambridge’s housing stock was quantitatively large, contributing $2 billion to the $7.7 billion that Cambridge residential property appreciated in the decade between 1994 and 2004. Of this total effect, only $300 million was attributable to the direct effect of decontrol on formerly controlled units, while $1.7 billion was due to the indirect effect. The majority of this indirect effect ($1.1 of $1.7 billion) in turn stems from the differential appreciation of never-controlled units. In net, our estimates imply that more than half (55 percent) of the capitalized cost of rent control was borne by owners of never-controlled properties, illustrating both the importance of spillovers in housing markets and the potential unintended side effects of price ceilings.”

            FTR, I’ve graduated from more universities than Bill Gates, Ted Turner, George Clooney, and Mark Zuckerberg collectively, though my real-estate portfolio still has some catching up to do to match them, collectively.

            Some of the people that don’t own rental property aren’t tenants or landlords, they are homeowners. There are something like 100,000 SF voters that own their own homes and aren’t directly involved with residential rentals as either a landlord or tenant. Nevertheless, their property values could be adversely affected by our extended sojourn with rent control, based on the studies I have read and recommended. That’s a lot of voters that most likely don’t have as fixed opinions about RC as renters and landlords, maybe even enough to decide an election or change a policy.

          • Posted by moto mayhem

            unfortunately, cambridge is now the #1 hub in the world for biotech and life sciences. they stole that from South San Francisco over the past 5 years. clearly not a dead city

          • Posted by SFrentier

            That study strictly talked about housing values. Of course buildings with rent stabilized tenants, which also tent to be run down, sell for less than market rate bldgs. That was never the issue. What we have always discussed here was if RC artificially increases the marginal rent rate. That’s all I and San Fronzi ever talk about here. Nothing to do with bldg values, how landlords improve/not improve properties, etc. (Basically RC separates buildings into haves and have nots. Buildings with market rents are better cared for, and that reflects eventually on the neighborhood.)

            But if you think RC doesn’t artificially lift marginal rent rates, please explain.

          • Posted by anon

            No one thinks that it doesn’t raise the marginal rent.

            The subtle issue is that without RC existing rents would undoubtedly go up and new supply would not address the low-end/low-cost segment.

            And probably the average rent would go up as well as well as in Jake’s study.

            Removing RC would free up supply and make supply more responsive and thus prices less volatile. But as you say, things would be less run down so for that and the reasons I mention above, the market would move towards higher quality/higher cost.

            In many ways, this is progress and the move to higher quality would involve a great deal of construction work and thus increase construction employment. And probably increased economic activity as residents bought higher quality goods and furnishings. But it is also true that for some people the higher quality units would be more than they need or want to pay for.

            Much in the same way that a number of Whole Foods type stores moving into an area might raise average grocery prices even though supply is being added. Consumption may be moving from ground beef to organic steak. Some of the older grocery stores may close. So for someone who likes organic steak, the increased competition at that quality level gives them lower prices then before. But for someone who only needs/can afford ground beef they only see fewer choices and higher prices.

            Also worth pointing out though, that this effect can push some supply down to a very low quality point. One which creates health, safety and neighborhood blight issues. Hence all the problems with “slumlords” in rent controlled areas.

      • Posted by BayviewSF

        Rent control is a historical relic. There will be no more new rent control units. Those old rent controlled units will gradually disappear until rent control disappears.

        It is a historical relic some politicians try to preserve for as long as possible. It is a way for politicians to divide and conquer, so that they can control the mass population. If everyone gets the same reasonable rent, who would care about those politicians anyway? Some politicians will be out of job and will need to make a living by doing some real work if they are capable.

        • Posted by pity the lords of the land

          yes, if we can keep up the recent historically high rate of new rental construction and also double the rate of ellis act conversions, then in a mere 50 years rent-control units will only be half the rentals in San Francisco. Of course if we falter and drop back to more normal historic rates of construction and conversion, then it will take a hundred years. And ellis conversions alone should wipe them all out in several hundred years. The politicians must live in fear of this new age you foresee.

        • Posted by BayviewSF

          How long can a residential building last? Is there a lifetime at certain point that the building will be deemed inhabitable? In that case, tenants will be forced to move out by the city for safety reason and the building will demolished, right? The new building will be free from rent control.

          • Posted by The Milkshake of Despair

            I thought that the rent control designation sticks to the parcel, not the building. So if you tear down and replace a rent controlled building, the new building is also under RC.

          • Posted by soccermom

            ” if you tear down and replace a rent controlled building, the new building is also under RC.”

            Not correct, unless the city forces you to accept Costa Hawkins applications of rent control to new construction.

            Another reason demolition permits are so difficult to get.

          • Posted by The Milkshake of Despair

            Thanks for the correction soccermom. So then there would be a strong motivation for RC landlords to get their buildings condemned or otherwise eligible for a demo permit.

            If a building burns down, is its replacement free of rent control? An investor with a long range vision could buy up vulnerable RC buildings and wait for the Big One to reset them back to market rate.

  2. Posted by sassyboyfrisco

    Ellis Act continue to work your eviction magic in the Mission!!!

  3. Posted by anon

    I own a few rental houses in Richmond, CA and rents are jumping there significantly as well. Kind of a third ripple out from SF. Tenants are being priced out of Oakland because of SF rising rents. No rent control in Richmond either. Decent area that is not ghetto and closer to El Cerrito BART station.

    • Posted by Amewsed

      It would be nice to revamp Richmond’s HillTop mall into something much better than it is. Isn’t UC planning to expand in Richmond, CA? Which parts do you think will benefit the most?

  4. Posted by SFResident

    Get rid of rent control, and get the politicians to establish some equal laws for owners, so that they will to rent out the 30,000 vacant units in want SF.
    It’s a win win

    • Posted by SOMA resident

      Well, that would be beneficial to the majority, but not to people depending on rent control and the populist politicians for whom the dependents vote.

    • Posted by DoggyDan

      You landlords are hilarious.

  5. Posted by REpornaddict

    Are these figures available by no of bedrooms at all?

    I am about to re-rent out my 1 bdrm Noe Valley apt so would be curious to see the breakdown.

    • Posted by Amewsed

      While charts may be somewhat useful to look at macro-trends, it is not useful to determine rents for your individual unit. There are too many variables ie. location, size and condition of unit, amenities, desired tenant profile, corporate vs. individual landlords, etc. I would check out craigslist, leasing broker websites (with photos,) and even nearby new(er) rental developments for better comparations to your unit.

  6. Posted by Amewsed

    comparisons, not comparations.

    Also, charts touting SF as the most expensive city to rent do not bode well for SF’s rental business. It scares away newcomers who do not know or have the time to get to know that SF’s different neighborhoods can be priced substantially less. Folks (and businesses) will head first to the East Bay. And SF will miss out on otherwise excellent tenants.

  7. Posted by youknowwhatImean?

    It could also be that the quality of rental units is veering more towards luxury or high-end for yuppies who’d rather rent than buy. The numbers don’t take into account remodeled versus “vintage” units year on year. I’ve seen several high-end condos and houses sell and then hit the rental market shortly after close.

    • Posted by Amewsed

      That does take a big pair to do — buy high and rent out high. And if the market turns and not enough yuppies who’d rather rent than buy? What then? Sell? Keep? Wait for a higher wave?

      • Posted by San FronziScheme (formerly known as lol)

        It looks pricey to you today, but ponder that in 2005 a 1000sf $600K value condo would rent for $2500 or even less. Today this condo sels for 1M and rents for 5K. The ROI is even better than in 2005.

        • Posted by JR "Bob" Dobbs

          And borrowing costs today are under 4%. In 2005 they were at about 6%.

          • Posted by San FronziScheme

            Yes. But I think both rental and resale prices are the result of artificial constraining. No turnover due to idiotic prop 13 and rent control. Not that I am complaining. As a 2010 purchaser I am very happy about the prop 13 savings, and collecting market rate rent is awesome. That’s roughly a 25-35% extra in my pocket. Enough to dig a nice swimming pool and build a pool house next year. Bring it on commies.

          • Posted by San FronziScheme

            My point being that outside of the high demand, which can be a periodic phenomenon, supply constraints are artificial and both prices and rents could go down, if only our dear leaders were a bit more enlightened.

  8. Posted by Aaaswee

    Hypocritial home owners and LL’s want to elimiate rent conrol but preserve prop 13 which is essentially rent control from gov taxes. You all knew the laws coming into this city and no one forced you to buy here. Dont like rent control? Then Gtfo…

  9. Posted by Frank C.

    Where is there proof that of 30,000 units being held off the market? I think it’s far less than that. Still significant, but rent control is only one of many factors in the housing crisis, and far from the most significant. BTW, I am not a fan of rent control.

    Check out Cambridge and Somerville, MA, which eliminated rent control, and guess what, they still have a rental supply and price problem.

    Prop 13’s perverse incentives to not sell are at least as big of a factor; I think a much greater one, actually./

    • Posted by San FronziScheme

      The City is very skittish to publish any kind of objective assessment on causes and effects of 1/2 baked market distortions, because it would expose the built-in idiocy of the current systems. In one building you can have a $300K/y family paying $1500 for a 3/2, while a $150K/Y family will pay $4500 for a 2/1. I am not saying they are frequent (please don’t resurrect that old straw man), but I am saying we need something better, more cost efficient, and shared by everyone.

      Yes rent control is only one factor, but it’s at the top of everyone’s list as to the cause of scarcity and price. And people who benefit from it are very likely to dismiss it and blame the next cause, simply because the windfall is undue and unjust, and they are reacting out of suppressed guilt. But the bias and damage is there.

      • Posted by two beers

        Correction: It’s at the top of the list from those who benefit most from higher RE prices.

        • Posted by San FronziScheme

          Yeah, the rent controlled tenants who are the fattest beneficiaries from rent control have their head in the sand, because paying 20 to 75% under market rate is something that doesn’t make any sense. Better blame the landlord and… capitalism!

      • Posted by anon

        Do you really think that rent control is a bigger factor in price than the citywide 40′ height limit?

Add a Comment

Your email address will not be published. Required fields are marked *

Recent Articles