With the average asking rent for a studio apartment in San Francisco having slipped below $2,000 a month for the first time in nearly a decade earlier this month, the average asking rent for a one-bedroom apartment in the city has since slipped under $2,700 a month for the first time since 2012.
As such, the average asking rent for a one-bedroom in San Francisco has dropped nearly 25 percent since the end of February and is down around 27 percent from the local market’s peak in 2015, driven by a sharp increase in vacancy rates (which continue to climb).
And the weighted average asking rent for an average apartment in the city, which currently measures 2.3 bedrooms when counting a studio as having one, has slipped under $3,200 a month, is down 23 percent over the past eight months, and is 29 percent below its 2015-era peak, with over 3 times as many apartments currently listed for rent in San Francisco than at the same time last year, despite the precipitous drop in rents and resultant pro forma cash flows.
where will the bottom land … $2300-2400/month?
Based on degrading state of affairs in SF, perhaps $1500 or $1000 per month.
Assuming 1 to 2 people per studio and assuming 30% of net incomes towards rent expense, $2400/month requires $7,200/month in net income (assuming 40% tax) or approx $12K/month in gross. Or approx $150K/year gross.
I guess the question is, how many of these $150K (or $75K x 2) jobs have disappeared from the city?
$150K is a mid-level position in most (all) tech companies. $75K is a low-level/beginner position. What is driving factor for tech companies to keep these mid and beginner level positions in SF when they can pay cheaper rates for the same skill set elsewhere in the country or world?
Using 30% net instead of gross is pretty baseless. Both banks and landlords use gross income for buying/renting, not post-tax income.
Anyway, for now at least, companies hire where the “talent” lives, and even if many are leaving, a lot remain here. Additionally there is a natural cap on how distributed teams are before there’s diminishing returns on hiring remotely — past one, maybe two time zones it becomes a real pain to collaborate efficiently. So while remote work may become more popular than ever, I sincerely doubt most tech companies will become distributed throughout the world without major presence in big (expensive) cities.
At $12K/gross ($150K/year) — net savings with $2,400 rent and $1,000 living expenses is $3,800/month. Which I think is a decent amount of savings per year. Then again if I can take lower salary but also pay lower rent+living expenses .. and so on. At the point, if it were me, I’d be wondering about the point of slaving for rent in a city. As I am sure the companies would be wondering about paying that kind of salary for mid-level jobs.
Regarding timezones .. you know that companies have been successfully off shoring jobs to timezones 12 hours away. That model is proven beyond doubt. What is in doubt is the value of having offices in over-priced areas such as SF and Bay Area — the techxodus is the proof of that doubt growing a pair and walking out.
150k is quite average actually. The minimum wage for exempt computer professionals in CA is 96k. I would guess 150k is probably average for first 5 year tech employees, with some making significantly more, esp at larger companies. mid level is probably 200-600+ with stock programs and bonuses. It is likely there are individual contributors at some large cos making 1,000,000+.
Very few job advertisements include stock programs and bonuses, so a job where someone makes 300-600k might be advertised as 160k, but anyone looking understands this. True startup jobs will be lower, like small companies that are actually startups but those people usually get more significant stock grants that can be worth millions but usually are not.
Yes, many directors at big tech cos make 2-3 mill easily per year. The income is so skewed in places like SF. I see families either “scraping” by with 200-300 dual income or living a rather lavish life with one-income pulling in well over 500k.
Question: are those I see living the high life with one-income not saving? Do they pretty much spend what is earned?
$2500 gets you a life of squaller right now. It’s unbelievable that anyone’s only paying 30% of their wage. The people renting the $2500 on rent are probably in above their head at like 50% net income. It’s gross.
I was being generous in my estimations to the benefit of SF RE optimists. But the case for optimism falls short. If people want to and can pay $2500+ for a studio/single bedroom apt. the only way such a financial decision can be supported is with a commensurate income base. In the ongoing and post pandemic SFO, where is that income base? or where is that going to come from?
I am sincerely interested in a reasonable/non-speculative answer in this regard.
Cave Dweller, you’re proceeding from a false premise. No one “wants to” pay $2,500+ for a studio apartment, they are forced to by the market forces.
Typically what happens is that someone (usually fresh out of college or from outside of the area and many times outside of the country) takes a job with a company which has an office in S.F. that they are excited about and then after they’ve accepted that job, they adjust their housing and related lifestyle expectations downward when they see what they can afford from the supply of housing available close to their price range (which will be set by 40% or as TC said, an even higher percentage of gross income depending on what local landlords will approve).
This moves the market without regard for what the people who were already living here, mostly at lower wages, can or are freely willing to pay. Those people have two choices: move out or try and get a rent-controlled apartment.
Why do you think so many penny-ante landlords and other hangers-on in the real estate “game” arrive here with dollar signs in their eyes, looking to make their fortune from taking advantage of high-earning workers who can’t afford to buy here? Simple. They read on the internet that high-income wage earners in S.F. are more likely to rent, so they form a more lucrative target for people from all over the world who want to be landlords.
The other thing you’re doing is attempting to use logical deduction from first macro principles (“the only way such a financial decision can be supported is with a commensurate income base”). But again, your premise is false. Many, many people do not have the commensurate income, which is what TC was trying to tell you.
All you need to do is look at actual surveys of local households and almost all of them will tell you that it is common for local, real-world households to be paying more than 30% of gross income in rent. And this was true prior to the pandemic.
So assuming it will become true post pandemic and then proceeding to ask where the requisite income will come from is suspect. It might become true, and with the recent exodus from S.F. due to WFH enabling people to work from anywhere coupled with the shutdown of local entertainment amenities, it may be much more likely if rents come down and settle at a new, substantially lower equilibrium.
My point is that you can’t assume that because it makes personal financial sense for renters to only pay 30% of gross income in rent that only people who can comfortably pay that amount in rent will live here. That might seem reasonable to you, but the real world facts simply don’t conform to your assumptions.
As somebody else also pointed out, and speaking as someone with 30+ years of experience in the rental property business — nobody qualifies tenants using net income. A typical standard is no more than ⅓ of gross income going toward rent. Under that common standard, you’d need $86,400 of annual gross income to qualify to pay $2400/month in rent. That is a really low number in SF; even lower when you consider that there are often two wage earners in a one bedroom apartment. In fact, if you are making only $86K per year, even as a single person, you’re considered impoverished enough to qualify for subsidized housing.
And as was brought up a few months back when this same topic came up, while the thirty percent of gross income going toward rent may be a common standard, if you look a surveys of actual renting households, one in four spent more than half their incomes on housing in 2018 nationally and there is every reason to believe that the proportion in S.F. either conforms to that or is higher.
So sure, it may be that someone with 30+ years of experience in the rental property business does not rent to people who can’t cover the rent with thirty percent of gross income, but clearly there are other people who will. And that is why it is not uncommon for renters in S.F. to spend forty percent (of gross income) or even more on rent.
It is also not unheard of to have more than two wage earners in a one bedroom apartment.
I live in northbeach. On Vallejo street between Montgomery and Sansom there are 20-30 multi unit apartments empty on one block alone. Landlords are holding off thinking the people will return, but I don’t think we are going to return to 2019 levels for years. And really pinning the metric on a studio or one bedroom is questionable. What are the majority of units in San Francisco?
In addition to the studio and one-bedroom specific stats, “the weighted average asking rent for an average apartment in the city, which currently measures 2.3 bedrooms when counting a studio as having one, has slipped under $3,200 a month, is down 23 percent over the past eight months, and is 29 percent below its 2015-era peak,” as outlined above.
And we’ll add, while one and two-bedroom units make up the bulk of the rental inventory in San Francisco, and in roughly equal proportions, listing activity and the implied availability is currently the highest for one-bedroom units, followed by two-bedrooms and then studios.
Does Socketsite have data for 2-bedroom and 3-bedroom units? If so, it would be appreciated if you would include those figures when you write these “Snapshot in Time Avg Rent in SF Articles”. It’s helpful for people looking for larger units to see where the market is at any given moment in time.
20-30 VACANT apartments? On one city block which doesn’t have a building taller than three floors?
Yeah, I’m not buying that. At all.
that would not be very far fetched. say there are 30 buildings on a city block, and each building contains on average 8 units for a total of 240 units (say a typical victorian has 4-6 units including basement and rear units that are out of sight, and a larger apartments has say 20 units). then 20-30 vacant units is only 10% which is not hard to imagine with the recent exodus.
And in fact, based on an apples-to-apples analysis of 3,000 units, spread across ten buildings, that we first compiled in October and continue to track, the average vacancy rate for larger, multi-unit apartment buildings was over 10 percent as of earlier this month (at which point the average asking rent for a one-bedroom was closer to $2,800 a month).
“say there are 30 buildings on a city block”
Go look on GoogleMaps. There are 18 residential buildings on that stretch of Vallejo Street. I have no idea where you’re getting “30” from.
It looks as if the vaccines will be available to the masses in the May/June/July timeframe. Given the education levels in SF, I expect swift uptakes of both doses and back to nearly normal (sweaty dance clubs aside?) by August 1st.
People will rush back to lock in a rent-controlled deal as soon as the coast is clear from the COVID Winter.
To clarify, as the vaccine rollout begins in Dec/Jan/Feb, it will become clearer and clearer what the timeline looks like for mass vaccine availability. People will attempt to front-run that timeline to get the best deals, rent-controlled if they are smart. I imagine rents will bottom out in December but as soon as February the front-running will begin and prices will (slowly) start to recover.
How will prices recover if they didn’t fall much. Real fall, i.e. 40% in prices to match the rent fall is yet to come.
I’m referring to / discussing rentals only here.
All of the CA Department of Public Health studies over the past 5 years have conclusively shown higher income and education means lower rates of vaccination. Marin the worst, Berkeley second, SF third. So not great news for rents bouncing back quickly in SF if the ‘smart’ people are too dumb to take the vaccine. Google the 2019 measles mumps rubella vaccine articles….
Pablito, that’s a fair counterpoint I’ll have to stew on. My instinct is that this is different as it’s far more life and death (physically/economically) than something like MMR, but perhaps I’m wrong.
Kunal, you are on here making a call for a precipitous drop to levels that even greatly surpasses the more seasoned bears on this site. Why?
I am just stating based on fundamentals of the city which seems worse than Detroit during last bust. You cannot beat fundamentals forever. SF is a:
1. City that has become a cesspool (literally).
2. City becoming a homeless haven.
3. City with growing regulations of all sorts.
4. City with tech companies leaving one after other.
5. City with growing taxes and govt. and fat govt. pay.
6. City with ridiculous levels of debt.
7. City with dated infrastructure, poor transportation, and pigeon box homes priced for insane.
8. City in natural disaster zone with yearly fires and a massive earthquake overdue.
9. City with draconian rent control policies on top of general CA business hostility.
10. City with everything else highly overrated (weather, ugly Victorians, tourism, sports, art, culture, …)
I mean, OK. REading that, “why are you on this website in the first place” is a natural question you must admit.
But as to your points:
1. No, not literally
2. Has been for many years
3. Status quo for many years
4. Generalization, some are coming, some are going, some are renting, some are happy to leave true 5. A pensions black hole effects everything and the gov structure is not capable of solving that near term, true
6. See point 5. Real reform solves this. But how?
7. Many (all?) American cities have dated infrastructure, transportation has always been meh, better than a lot of places, worse than NYC or Chicago, pigeon box priced for insane is not a real point
8. yearly fires isn’t a thing in SF, massive earthquake overdue? says who?
9. agreed
10. just an average hater sort of opinion. Others could say the exact opposite in every category.
again, why are you here then? Not to be a jerk or anything. It all truly merely begs that question.
“… massive earthquake overdue? says who?”
Californio – Large quakes are a fact of life here and all you need to do is to look at history to see that a large (7ish) destructive quake occurs about twice a century. The last quake like that was not that long ago in 1989. We don’t know exactly when the next large quake will occur. It could be in 2050 or it could occur this afternoon. But it will occur and we should plan for it. Those seismic building codes aren’t there just to line the pockets of engineers and builders.
If you’re in RE for the short term then perhaps you can afford to gamble. But if you’re in it for the longer term then there is no gamble, it is nearly a certainty.
Look, respectfully, one of my best pals is in a vital role at the USGS and I’ve discussed the subject at length with top American experts. The Hayward fault, the San Andreas, the likelihood of the Seattle area being the site for the next “big one,”etc etc. So I don’t know what your words about building codes being there just to line pockets, or RE interests just for the short term, have to do with what I wrote, or what I responded to. But moving forward you can spare me the pedantry. Thanks in advance.
I’m not sure what you’re trying to say Californio but there’s nothing in your response that contradicts using seismic history to predict future events. While you can’t predict the exact timing, you can make accurate predictions for longer intervals. And there’s no evidence that the physical macro dynamics that cause quakes here have suddenly changed since Loma Prieta.
Who is talking about seismic change since Loma Prieta? I don’t understand the preponderance of straw arguments. It’s a fact of life that this is an area with active fault lines. That’s it.
No way. Most tech companies are going remote permanently. A majority of well paid tech career renters I know have moved out of SF (and the bay area). San Francisco’s bubble is gone, most likely never to return. Rents will continue to drop till the end of 2021
On why I am here, I am not here in SF. I just feel sad at the demise of a promising city and hope for a revolution.
When did you leave? And why?
1. Liberal policies that decriminalize drug use and encourage harm reduction through non-profit agencies like the THC. And a slew of others that take government funding to tie up SRO buildings in 100 years MLS’s to sustain the pool.
2. See point #1.
3. Depends on who is trying to get elected and what area of the city is being gentrified. The H.B.U of the last half-decade has created speculators to entitle portions of the city in anticipation that city supervisors will move to enact H.D.H in line with the general plan. To portion out 20% for (See point #1.)
4. Ed Lee gave tech companies a tax-break. Under Breed/Yee G.R.T rates are in process of being amended. G.R.T revenue through commercial rents, low vacancy rates, and a boom boom boom in housing came to the city. And many folks incythe government got fat from the appreciation of home prices due to foreign buying. And last I checked the Salesforce tower is still named the Salesforce tower.
5. See points 1 and 4. As long as the government in place thinks that they can cure drug use through more drug use with a smile, and Unions can get paid much to do little. With no revision to the budgetary plan, like the housing bubble, government is bound to pop.
6. COVID haircuts for all. Meaning raises the retirement age and make the review process for hiring and firing government employees more strict. And no double-dipping. No being a cop for 20 years then a nurse for another 20 years.
7. 7×7 equals 49. Last I checked you can’t create more land out of thin air, that is unless you intend to convince the government of San Francisco to make like the Chinese and do what they did on the south china sea.
8. Fire management is a state issue. Earthquakes don’t happen because you say so. Ever heard of the gambler’s fallacy?
9. Yes/no. Market rate housing is a great thing. Look at how rents and in turn housing prices are falling. Next thing you know you will say the government should enact a price floor to preserve property tax revenue and prevent homeowners from reappraising their homes for more favorable rates.
10. WEATHER is ephemeral and it is nice not to have to freeze during the winter. No wonder all the homeless come here to live. The weather. The homes are nice if done well. Tourism is tax dollars for points 1, 2, 3. Giants are fun to watch and the same with Warriors. Last I checked Rothko, Monet, Van Gough, El Greco, and many others were great artists. And the de Young, MoMa, and Legion of Honor are and will always be world-class. Sad you think these to be overrated.
Thanks for the post.
Wow! Thanks Dusty
This is a post packed with insightful information. Cheers!
If you’re not in S.F., why are you sad? The demise of a city “promising” for what? You hope for a revolution, but a revolution for whom?
They will keep dropping to 2005-2006 pricing. One bedrooms will rent for about $1500 a month by April. Assuming you can find someone that wants to live in SF.
Agreed. I’m sure there are many renters on pre-covid leases waiting until they expire. With companies not opening until at least June, I feel that January-March will be a complete bloodbath.
Don’t you think that with the vaccine timeline becoming more crystallized in Dec/Jan/Feb, and offices re-opening in June, that people will start moving back to lock in a cheap rate?
Only if you assume that people only left here because of the virus. The virus is everywhere and we seem to have handled it better then many other places. Yet we seem to have to have a higher exodus, then most places, with worse rent drops, for sale inventory up sharply vs down across the rest of the US, sales price weakness with 2015 era pricing for even some nice SFHs vs Bloomberg did an article recently about how hot the luxury market is in general.
Our housing market hit seems to have been way out of proportion to our COVID hit. So it doesn’t at all seem likely that fixing COVID will fix the housing market.
They left because of the virus and prices. SF is the most expensive housing market in the US, of course the crash was more severe here than anywhere else. That it was doesn’t necessarily mean people don’t want to live here, though I’m local conditions had a role. It’s just quite difficult to quantify.
Vaccines can prove otherwise when applied to large populations. The approval process is pretty rigorous but is not a proof of complete safety or efficacy. I think the current optimism remains to be proven — until then, i guess we wait for data.
I am not questioning the credibility of scientific claims and process. However, we have to acknowledge that there are many factors that may slip observation and accounting for during development and testing.
Yes I think some people will move back but hardly enough to make up the volume of those who left and who will be leaving once their apartment leases expire. Once a vaccine is released, it will take at least 6 months to get everyone vaccinated. More importantly until live music, theater, sporting events, etc start opening up, there’s still not enough reasons for people to move back into the city. It will be at least 9 months until there’s price stabilization in the rental market until then it will be consistently dropping.
Do you think there will not be a mad rush in the few months prior to all the tech companies reopening in-office work?
Facebook, Google, and Salesforce were all in the July to August time frame of going into the office. Do you think it’s possible people would want to snatch up apartments a couple of months before then?
I’ve been watching apartment prices closely for the past couple of months since I plan on moving into San Francisco in the spring time with a friend. But if I’m able to squeeze out a couple of more months living at home until May or June, I will definitely try.
@Bill B .. FB, GOOG and others in the valley have already called WFH until Sept 2021. This is a documented fact. Where did you get the July to August time frame? For all practical reasons, I expect all of 2021 to be WFH.
For a non rent controlled place, what’s the advantage of rushing in to try and front run the market? If rents do shoot up, they’ll just up your rent to market next year.
I’ve met people who talked about living the lifetime renter lifestyle and if that’s your deal you may as well grab a rent controlled unit if you can get one at a great price. If rents drop further you can just move and ratchet down. But the lifetime renter types seemed to me to be ‘old SF’ types and not really represented among the newer techie class.
And not just renters. Talk to homeowners trying to move out. Virtually touring a neighborhood, virtual open houses, using google maps traffic to estimate commute time, zoom calls with teachers at far away schools combined with trolling through Facebook posts of parents groups… Combine that with disappointing pricing for selling homes in SF and poor inventory/price competition in desirable areas.
Trying to move a household during COVID sounds like a huge pain in the A**. I think there’s a lot of for sale supply being pent up.
What’s interesting reading above is just how much people opinions are predicated by how long they have lived in SF. Rules that apply in other places dont apply here.
For a start how many real estate crashes have you lived through in SF. I’ve only seen four. The worst for property prices was the early 1990’s, the worst decline in rents, so far, was after the first Dot Com bubbles in the early 2000’s. This was a second Dot Com bubble driving rents since 2012 so the crash in rentals will be that bad. For reference my benchmark rental sector in SF, houses in the Sunset, the high point of the 2000 rental prices was only exceeded (unadjusted) in 2013. Adjusted maybe by late 2014. That just how far rents can fall and then how long they can take to recover. It was the same pattern in the 1990’s. But not as pronounced.
Regarding earthquake risk it’s quite simple. Those who were here for Loma Preita take it seriously, those who were not tend to not take it so seriously. Not surprising really. I also had a long chat with a FEMA seismologist about risks. Back in 1994 when they were still based in the Presideo and the after effects of Loma Prieta was still news. The conversation was very interesting because as I read geology books on subjects like the Laramide Oregony for relaxation I was able to ask intelligent questions. But the most interesting subject covered was what does not make it into the official reports produced by FEMA, the California Bureau of Mines (at the time) etc. Seems politicians and local officials dont want a lot of the more disturbing estimates of likely damage making it into the official reports. So if you own property my advice is get a copy of the book Peace of Mind in Earthquake Country and do the necessary structural hardening. And get very very good fire insurance. Maybe your whole time in SF will be earthquake free and I hope it is. It was nt in my case.
As for all the other quality of life stuff. It was a lot worse in the 1970’s and 1980’s and the most dangerous time in SF in my experience was the early 1990’s. So still not terrible yet but will get a lot lot worse before the inevitable backlash happens in a decade or two and the place is cleaned up again. Just like it was in the 1870’s and 1920’s.
As I said SF is not like anywhere else. And really never changes. Always been a bit askew ever since the day Juana Briones first set up her home here. Now if anyone deserve a big statue in SF its Señora Briones. Who by all accounts was an exceptional person and you could not have asked for a better person to be the founding mother of a city. The account of her in memories like that of William Heath Davis shows what a truly good person she was.
So San Francisco will remain San Francisco, much as it always was.
Great Post. I’ve been through three real estate crashes. 2000, 2010, 2020- .. for the first one, i was young and unaffected. For the second one, i was affected but naive. For the 3rd one, still affected but old!
Thanks for the book recommendation.
San Francisco is a beautiful place. But be careless, it will take more than what it has given you.
Where did you find your $2700 number? The last zumper report says $2800 and your reference link doesn’t go to anything that reports $2700.
We didn’t “find” anything. We maintain a database of apartment listing data, pulled from various sources and normalized, going back to 2004. And we’d be willing to bet that Zumper’s next report says closer to $2,700 for a one-bedroom.