San Francisco may finally be reaching peak rent, but at the current levels, that is still a problem.
The San Francisco market is unique in that sprawl is not an option. The 8 mile x 8 mile size of the city is not going to expand unless we can figure out how to fill in that Pacific Ocean thing.
However, the market may finally be reaching peak rent. 6.6% annual growth is simply not sustainable. Recent changes to the San Francisco market have greatly impacted the real-estate rental market.
- The center of gravity for startups have shifted over the last 10 years from Silicon Valley (Palo Alto to San Jose) to San Francisco.
- Recent IPOs (Twitter, Yelp, Zynga, etc.) and unicorn funded companies (Uber, Lyft, Dropbox) have provided a major boost in wealth for San Francisco tech workers.
- Airbnb has provided an attractive revenue source for San Francisco landlords.
What Goes Up?
The National Association of Realtors proudly touted the infallibility of real estate investments showing that over a 36 year period from 1968 to 2004, that real estate in the United States appreciated at a 6.4% annual rate with NO yearly declines. However, after the housing bust, the win streak was over. By the middle of 2010 the US real estate market was still at 2004 levels. Of course the pains and gains of the housing bust were not evenly distributed. Markets like the San Francisco Bay Area dipped only slightly and then roared ahead. In other markets like Phoenix and Las Vegas, the markets are still below their previous highs.
The layman's theory of real estate goes something like this: The Pilgrims arrived. They started using land. More…www.investopedia.com
In the meantime, as the article points out, San Francisco has a problem with no end in site. Even if the rents go sideways, the affordability of San Francisco is broken.
There have been recent articles showing that the housing crisis is taking its toll. Residents surveyed are considering getting out of San Francisco and heading to markets where they can buy a house, rather than share a rental with 3 of their best friends.
Rising rentals = eviction notices
The housing crisis is also taking a toll in the form of evictions. I ran some numbers to see how the correlation between rental prices and evictions levels. Here is the chart.
I also did an analysis of evictions against unemployment rates. As to be expected, the lower the unemployment rates, the higher the eviction notices.
Time to build
San Francisco planners and developers are going to be busy. The transformation of the South Park area worked a little too well. It took a little while to take hold, but the project is an example of how a well planned development project can work. As Michael’s article states, San Francisco needs a massive increase in housing units.
Here is the chart of the data I used.
Here were the sources for the chart.
As real estate prices have soared amid San Francisco's technology boom in the past six years, so have evictions…www.sfexaminer.com
Late last week, the California Senate passed S.B. 1439, a law introduced by Senator Mark Leno (D-San Francisco), with…www.citylab.com
https://research.stlouisfed.org/fred2/series/CASANF0URN https://medium.com/@mccannatron/1979-to-2015-average-rent-in-san-francisco-33aaea22de0e#.dh7192vgn http://www.antievictionmappingproject.net/FINAL%20DRAFT%204-20.pdf