Erwin Schrodinger figured it all out in 1935. He supposed that complex physical states could be affected by their interpretation. (Somewhere there is a particle physicist shaking his head). I propose that the anecdotal swirl around Mission District rental rates actually defines their state. So, let’s review the anecdotes to define the phenomenon.
Anedcote One:
I looked out my front door last week and saw a bunch of people crowding the sidewalk. Not for a second did I wonder what they were doing. The gathering was way too familiar. They were waiting to be admitted into an apartment for rent viewing. Just like one of those exclusive nightclubs in LA, people were being allowed in one by one.
Anecdote Two:
In an e-mail from a friend who is a commercial Real Estate Broker, “A client had an open house a couple weekends ago at 17th & Dolores. The unit is a 3bd 1ba in good condition with no particular upgrades. My client put the craigslist ad out at $3,650. He got 40 people through and 10 applications. He listed the rent as “$3,650 or better” so people started bidding. He counted the top 4 applicants at $4,300!! One group agreed but he chose a family at a lower rate. They seemed to be a better tenant.”
Anecdote Three:
Over heard at an open house where a skilled apartment hunter talked to two women who had just moved to San Francisco to attend medical school. The knowing apartment hunter said, “Girls you have to kiss a lot of frogs to find the prince.”
Anecdote Four:
“I went to an open house and it just seemed to be a popularity contest”
These are but four of thousands of stories out there. What is yours? The more complex and equally discussed topic is the cause of today’s conditions. First let’s look at the raw numbers that I have collected from Craig’s List. The first chart shows an actual plot for each apartment listed for rent on Craig’s List on the first and 15th of the month for over two years.
The red dots are the most recent 9-1-11 plots. I have removed any duplication. Sometimes, property owners list the same place several times. The “x” axis is simply numerical. The actual number of places listed and grouped by configuration. The first clusters of numbers are studios. The second are one bedroom and so on. The broader the plots span the more units available at that point in time. The “y” axis is the monthly rent. As you can see the clusters are fewer in number and higher is monthly rent.
Another way to look at the rental rates is by their average. This method is a little misrepresentative in that sample size is small so an exceptionally high or low “outlier” will shift the average. Nonetheless the averages do tell a clear story.
The vertical yellow line marks one year back from today. It is obvious that the rates have started trending up over the past four months. The simple law of supply and demand is at play.
So, let’s look at supply in two ways: an independent listing of the actual number of apartments available at any one point in time and then again listed stacked on top of each other to give a picture of the total availability.
This chart shows the number of listings plotted independently of each other. Now remember, the “snapshot” is taken on the first and the 15th only. I have resisted the temptation to include other times when the number of listings vary. That would amount to editorializing, which would add confusion to an already confounding phenomenon.
This chart places the number of four bedroom listings on top of the number of three bedroom listings and so on. This provides a picture of the overall availability of apartments in the Mission. What I found interesting was that the availability dropped quickly two years ago but the rates didn’t really begin a dramatic reaction until about four months ago. I have no idea of why. Do you?
This brings us to our set of commonly head views.
One
The short supply and subsequent rental rate increases are a result of restrictions placed on property owners by the SF Rent Board. Creating new rental property or maintaining property as a rental is simply too difficult. Apartments in San Francisco are not a great multi-unit real estate investment.
Two
The rates are driven by the unbridled greed of property owners. Rent laws restrict increases to .5 percent this year so they make it up when a place becomes available. They put people, who are desperate for a place to live, in a bidding war. Nobody can afford this madness.
Three
There is a boom like there was in 2000. Some renters have bundles of money and are throwing it at property owners to get a nice place in a good location (The Mission). The bubble will pop just like before, but trust me the rental rates won’t go down much.
Four
There isn’t anything available because everybody is staying put because no matter how crazy your current rent might be a new place will make it look like a bargain.
So you are saying to yourself, “OK Mr. Rent expert what is going on???” And unfortunately my answer is, I have no idea.
The dynamics remind me of the stock market. Everyday stocks trade up or down and all of the commentators gush fourth with intricate rationale but …in my estimation, nobody has a clue. By the way, when it comes to stocks, I am always the last guy to leave the wake. It is sad to consider my best investment has been the resale of a Burningman ticket.
Today’s markets, be they rental or stock, go up because they go up and down for the same reason. Defining the real reason is just talk… which I might add is much more interesting after a minimum of two tequila shooters. So, toss a couple shots and comment on your theory. And be sure to give the cat a treat.
Technology companies are hiring, people are moving here from all parts of the US and world. Many are making over 100K a year. Paying 3 to 4K a month is no big deal
Google, Apple, Yahoo, and Ebay to name just a few all run multiple unmarked shuttle services into the city.. These employees are commuting almost an hour each day just to live in SF!
San Francisco, even though its considered a major city has refused to grow.. In fact its barely doubled since 1910!! 100 year! In contrast the US population has doubled since 1950. shttp://www.sfgenealogy.com/sf/history/hgpop.htm
In response to comment by Chris regarding “smaller cut”..The cut in SF is pretty small already.. Most leasing brokers are paid directly by the landlord in SF and the tenants receives this service for free. To contrast, in most cities, the tenant is charged a full months rent to 15% of the annual rent for a broker to facilitate the availability of an apartment. The logic is that unless the broker took the time to advertise and show the property, its unlikely the prospective tenant would have ever known about it a fee is deserved for this.. Really, why should a landlord pay 7% or 8% to a broker if supply is short?
Solution- Lets build more housing and lets build it higher. This is a city after all and one of the primary centers of technology in the world.. Lets not pass up this new gold rush.
The single most valuable thing that the SF Tenants Union could do for people *looking* for rentals (as opposed to old timers enjoying the perks and quirks of our rent control laws) is to require landlords to file a standard price disclosure form with the Rent Board every time they rent their property to a new tenant. The form would include the monthly rent and various attributes of the unit (neighborhood, size, number of bedrooms and baths, parking, etc.). If this data were then made available in a searchable database, tenants what have a much better idea of what to expect to pay, and landlords would have a much better sense of what to charge. The market, in short, would work much more efficiently–meaning fewer crazy lines at “underpriced” listings, a smaller cut for apartment brokers, etc.
Alas, I’m not at all hopeful that the Tenants Union will ever push for such a reform, since they apparently exist to protect the privileges of existing tenants, not to help tenants generally.
I agree
Craiglist has become the only game in town for listings.
Renters only can see what the asking price for a unit is. They don’t get to see what units with ‘For Rent’ signs rent for, rentals to friends, etc.
Landlords will obviously always ask for more, hoping to get it. These asking prices move upward, and then renters see these and assume that is what the actual market price is. Landlords see other landlord’s asks, and likewise assume this is the new pricing. Nothing changes this dynamic until units don’t move.
Eric is right too. Tech company shuttles are definitely driving the vacancies down.
Unbridled greed?
Such a thing could exist in Jane Kim’s Twitterized San Francisco????
Who knew!
it is what you think it to be. 😉