This page has been archived and commenting is disabled.
The San Francisco “Housing Crisis” Gets Ugly
Wolf Richter www.wolfstreet.com www.amazon.com/author/wolfrichter
There’s a reason why it’s called a “housing crisis” – rather than a “healing housing market,” as some pundits might prefer. It boils down to this: Many middle-class people who grew up in San Francisco can longer afford to live in a city where money from all over the world is now sloshing around knee-deep.
They have trouble buying or renting a halfway decent place, though they might be able to shack up with a bunch of people, and that’s great, it works for a while, especially for younger folks.
Those who bought a home or rented a rent-controlled apartment a long time ago are fine as long as they don’t move. For renters a move can happen when they’re evicted. Then they have to go find a cheaper town to live in. It’s not exactly the American dream. School teachers even.
Property prices have skyrocketed. According to Paragon Real Estate Group, based on MLS data through July 2, the median condo price has jumped 74% since Q1 2012 to $1,125,000 and the median house price 104% to $1,356,000.
If a household earns the median household income, forget buying. Leaves renting.
In its new SF Bay Area Apartment Market Report, Paragon found that in the first half of 2015, the average sales price of apartment buildings with 5 or more units has jumped 82% since 2009 to $485 per square foot.
The per square foot averages range from $394 in larger buildings (5-15 units) in the Mission to $845 in smaller buildings (2-4 units) in Pacific Heights. Prices are based on the interior living space and don’t include garages, basements, decks, and rooms or units built without permits.
Average asking rents have soared too, in a dynamic where higher rents lead to higher property values which lead to higher rents….
It works as long as rental units are in short supply, and as long as people from all over the world are following the siren call of startups with big valuations but no profits, where investors rather than operating profits fund some or all of the expenses.
This money has triggered the “housing crisis”: Average asking rent in Q2 this year reached $3,524. That’s up from $2,243 in 2010, the dip after the Financial Crisis. A 57% jump in 5 years. Over the same period in Oakland (Alameda Country), just across the Bay, average asking rents have soared 88%.
Too little inflation? We’re better off ignoring these facts on the ground, apparently.
Since Q1 2013, asking rents in SF have risen 26%. In Oakland, 44%, including over 12% in the last three quarters alone!
Paragon Chief Market Analyst Patrick Carlisle explains that both cities have experienced “incredible appreciation” in rents. But Oakland’s increases have accelerated due to the “classic ‘overflow’ effect.” It’s now “a major go-to option in the face of SF’s extremely high rents.” Hence the insane price pressures across the Bay.
What’s next in the boom-and-bust cycle by which San Francisco lives? Enthusiasm, endless optimism, lots of money, and: a phenomenal building boom!
“There are hundreds of residential building projects in San Francisco’s development pipeline, totaling more than 60,000 potential new housing units,” according to a report by the San Francisco Business Times. About 9,000 units are currently under construction.
In 2013 there were 244,000 rental units in SF, according to the Census Bureau’s American Community Survey. So these units will move the needle. Paragon warns, “As they continue to hit the market, they may exert downward pressure on further rent rate appreciation, especially at the highest end.”
After the boom, the bust. That’s the rule in SF. But not yet.
The “housing crisis” is not a crisis for those on the inside, such as developers, realtors, current homeowners, people with enough money to easily pay for whatever they want, or for people in rent-controlled apartments who haven’t been evicted yet. And it’s not a crisis for the various levels of government because the associated activities throw a lot of taxes their way. For them, it’s nirvana.
But for the rest it has gotten so bad that SF’s darling, Airbnb, has been tarred and feathered in its hometown for single-handedly aggravating the housing crisis. So it felt obliged back in April to respond, showing just how beneficial it is to rent out units to tourists, rather than let locals live in them. This has “contributed nearly $469 million to the San Francisco economy last year,” it said; and Airbnb hosts were able to use the money “to pay the bills and stay in San Francisco.”
A month later, the City issued its own report that found that between November 2013 and February 2015, there had been between 5,249 and 6,113 Airbnb listings, even though these types of short-term rentals of 30 days or fewer were illegal in SF until February 2015.
An effort to tighten the screws on short-term rentals by imposing a “hard cap” was rejected by the Board of Supervisors in a 6-5 vote last week. But an initiative to limit the use of housing for short-term rentals to 75 days a year has qualified for the November ballot.
It boils down to an argument between two sides separated by the money line: those that cannot afford decent housing and those benefiting from high home prices and rents.
Airbnb is valued at $25.5 billion. It received $2.3 billion in investor money, part of which gets spent in SF directly or indirectly, including on housing that will drive prices and rents further into the stratosphere. Airbnb does what SF startups are supposed to do: lead the boom, hire a lot of people, offer them the sky, blow a lot of investor money, ignore the consequences, and somehow survive the bust that always comes.
The fact that this argument even exists in San Francisco and that it has taken on such importance shows just how crazy the “housing crisis” has become.
The forever-boom? Maybe not. Read… Home-Buying Panic Sets in, Housing Bubble 2 Soars, Industry Drools, But It’s Doomed, Says Zillow
»
- advertisements -
funny but 'asking' price isnt 'getting' price. no one qualifies at these prices. anybody can get a mortgage but no one rents to an underemployed person. my old place went up 350%. it was a dump but had a garage. when i moved out, it was listed but as far as i can tell never rented for 12 years....so much for a bubble.
remember back when an agent would list a rental and 100 people would show up at 7pm to view it and you had to have 3 credit reports and at some places you had to give them a deposit to view the place.....hahaha. those were the days.
the salary necessary to qualify for a $36,000 a year apartment is way over $100k and how many fae startups have 3000 employees like they did in the tech bubble....?
this is all bullshit....
Yes, but they are so intellectually superior and progressive that they will figure it out. Just ask Brown, Feinstein, Pelosi & Boxer.
Nevermind "San Francisco", it's the entire fucking Bay Area. Crack houses in Oakland are going for ridiculous money. 60 year old tract houses in Daly City are nearly a million now. According to everyone I talk to it will NEVER go down.... NEVER! I've got my popcorn ready and will thoroughly enjoy the tears when the bubble pops.
We need to get the Chinks out of the US housing market.
What's happening now, kind of makes the 'greed is good' phrase of the 80's seem rather lame.
If homes are marked to market for assesed value ...what happens to property taxes ?
Nothing. Prop 13 keeps taxes moving slowly until a sale happens, then they are reset at market levels. I know of cases where the county won't send a tax bill because it's not worth processing a tax bill of less than $50 but the neighbor gets a hefty bill.
Purchase now in Humboldt (Eureka). The only place on the coast affordable to live. The big upside is that the rest of the state is already figuring out that they are going to need our overflow of water. SF is a pit: LA is a pit! They will deserve what is coming.
Forks is still pretty affordable, too.
Over the same period in Oakland (Alameda Country), just across the Bay, average asking rents have soared 88%.
And that's sugar-coating it, as in Oakland places within walking distance to BART had their rents double in the last 2 years!
Agreed,
Used to live at Allegro on 3rd and Jackson, moved out in 2010, the rent was hight, and now the rents are INSANE. I got in for $1,900/mo in 2008 for a 2 bed, 2 bath with laundry in unit. Advertised for $3,480 - $4,500/mo now for same floor plan.
Crazy!!!
Not a bad part of town, but after dark....it all changes.
And it's 1/2 mile to BART from there.
Ha! You think that's bad? How about >$2000 a f**ing square foot in Palo Alto for trashed tear downs.
http://www.trulia.com/homes/California/Palo_Alto/sold/27291358-191-Monro...
You can almost hear the giant blowing sound. That's the opposite sound from Ross Perot's giant sucking sound. That's the sound of hyperinflationary Chinese dollars we've been sending overseas for the last 30 years out the trade deficit flooding back into the American hard asset market -- mainly real estate.
Can you imagine the song today Are You Going To San Francisco? Cause today that's all BULLSHIT.
If you're going to San FranciscoBe sure to wear some flowers in your hair
If you're going to San Francisco
You're gonna meet some gentle people there For those who come to San Francisco
Summertime will be a love-in there
In the streets of San Francisco
Gentle people with flowers in their hair All across the nation, such a strange vibration
People in motion
There's a whole generation with a new explanation
People in motion, people in motion For those who come to San Francisco
Be sure to wear some flowers in your hair
If you come to San Francisco
Summertime will be a loving day If you come to San Francisco
Summertime will be a loving day
fucking bernanke liked that, he liked housing bubble and wanted to make another one.
"average dollar per square foot values?"???
I think markets in San Francisco are exactly so healthy like in Finland. In 2009 we had a small dip and then 2010-2015 huge rally. Now we all are wealthy, it's wealth effect
Aspiring to live in San Francisco today is the same as aspiring to live in Manhattan. The banking and technology oligarchs have arrived, as well as the influx of Asian money. America is for sale. From World Population Review…
The 2013 estimated population of San Francisco is now 825,111, which represents a very slight drop from its 2012 population. (The population of San Francisco is projected to reach 969,000 by 2035, which is nearly a 20% increase from today's population, and development is already underway to help the city grow. 80% of the city's growth is likely to occur in just 20% of the city, and the density of San Francisco will only go up.)
San Francisco is also hub of the San Jose-San Francisco-Oakland metropolitan area, which has a population of 8.4 million.
San Francisco is the 14th most populous state in the country with a density of 17,620 people per square mile (6,803/square mile). It's the second most densely populated city in the country after New York City.
San Francisco is also home to the largest percentage of gay and lesbian people in the United States at 15.4%, as well as the highest percentage of same-sex households.
San Francisco has a smaller percentage of children than any other major metropolitan area in the United States.
The Chinese population of San Francisco represents the single largest ethnic minority group with 21.4% of the population.
Over one third of San Francisco's population was born outside the country.
Because San Francisco's non-Hispanic whites make up less than half of its total population, San Francisco is now a minority-majority city.
San Francisco Demographics (and the trend continues)
According to the 2010 Census, the ethnic makeup of San Francisco was:
http://worldpopulationreview.com/us-cities/san-francisco-population/
well a non white has One chance in two of catching a white GF.
and vice versa.
Statisical balance. Zorro wouldn't mind the Asiatics they are good with chop sticks.
The original californian loved to fence and wore a mask. Now thats what I call style.
Under new guidelines that the Obama regime rolled out earlier this month to racially balance the nation by zip code, there might be changes coming to the City of San Francisco and the Bay Area.
The Affirmatively Furthering Fair Housing database will map every US neighborhood by four racial groups — white, Asian, black or African-American, and Hispanic/Latino — and publish “geospatial data” pinpointing racial imbalances. The agency proposes using nonwhite populations of 50% or higher as the threshold for classifying segregated areas.
Federally funded cities deemed overly segregated will be pressured to change their zoning laws to allow construction of more subsidized housing in affluent areas in the suburbs, and relocate inner-city minorities to those predominantly white areas. HUD’s maps, which use dots to show the racial distribution or density in residential areas, will be used to select affordable-housing sites.
HUD plans to drill down to an even more granular level, detailing the proximity of black residents to transportation sites, good schools, parks and even supermarkets. If the agency’s social engineers rule the distance between blacks and these suburban “amenities” is too far, municipalities must find ways to close the gap or forfeit federal grant money and face possible lawsuits for housing discrimination.
http://nypost.com/2015/07/18/obama-has-been-collecting-personal-data-for-a-secret-race-database/
".....San Francisco is the 14th most populous state in the country with a density/....yada..."
Is it the 52nd state, with Israel being the 51st? Or vice versa.
I totally missed the secession and boy, I'd have loved to see that and Lincoln's bones rolling around in his grave.
Same is happening up and down the West Coast including Canada.
Talent is leaving the area and corporations are either considering to move where real estate and talent are more abundant and affordable or they're already gone.
Sucks to be rich and not being able to find anyone pouring your coffees, I guess?
But don't despair because China's economy is stalling and about to go in reverse. The flow of HAM will eventually stop.
In the meantime, locate to a jurisdiction where foreign ownership of real estate is restricted or speculation of real estate is not a rich man's sport. Northern Europe is one of those places and most people are fluent in English.
"The HAM must flow"
Fear is the mind-killer.
Canada is nucking futs with real estate prices ... I'm going to visit friends in BC later this year ... told them to sell last year and rent but they think trees grow to the sky ... when it crashes they'll be sorry as you can't leave mortgage debt behind in Canada...
Vancouver is insane. The rest of the country is elevated compared to most of the US, but nowhere near THAT crazy. Bank lending standards are somewhat stricter here as well, so our bubble will run up a lot higher methinks.
"It boils down to an argument between two sides separated by the money line: those that cannot afford decent housing and those benefiting from high home prices and rents."
Doesnt this sum up the entire american economy?
ZIRP, QE etc. fiat money on steroids , equals a flow of free money to those who already have it, and not just for the one percenters. Those who are in accept the status quo, those who are not get priced out, a rigged uneven playing field, the officials have been paid off to pick the winners and losers.
Wait until the big one
http://www.newyorker.com/magazine/2015/07/20/the-really-big-one 9.0 earthquakes
I'm going to laugh my ass off when a fire or earthquake knocks down all those 50 to 140 year old structures and someone who just paid $2M for a 1100 square foot nothingburger is handed just $200,000 from his insurance company to rebuild... and the cost to rebuild to code is 5x that ... but they only pay for what was lost and what was lost was crap.
building a house is actually fairly fucking cheap. you're paying for the land basically. the house itself is fucking peanuts.
Why are you going to laugh? Schadenfreude isn't good for your karma. Does the sight of blood arouse you?
"Schadenfreude isn't good for your karma."
Karma? What are you, some kind of hippy?
When does Uncle Sam begin confiscating all foreign-owned real estate to show China who is Boss in the South China Sea?
That will be a big game changer.
Allowing bubble blown profits from China to blow over to the West Coast and inflate housing is another slap in the face to wage earning americans. Allowing the financialized subsidized spinnining of money out of thin air to mix and devalue money saved via labour is ethically wrong.
Indeed it is wrong! It is part of the illness that infects America's financialized bubble economy. Labor and savings are devalued while profit from speculation and manipulation is honored. It is a road to hell, but it takes time to arrive there.
Gentlemen, it is really more of a slap than you describe. Most of the time the money is HOT from the corruption over there in the contracting process with "state owned" companies. When it comes here, a green card is very often granted too. What happens then? When these corrupt people get around 55 to 60, they come here, have no income then get in government assisted housing and receive medical treatment much better than in their previous country and we pick up the tab. (remember--Obama care cost is reduced dramatically for low income individual and isnt based on assets owned). Immigration broke?
On a long enough time scale someone will be left holding the bag.
In this day and age it will end up being the tax payer..
My parents had a house in San Francisco that they purchased in 1952 for something like $13,500. It was in the Noe Valley area of the City, which is a pretty desirable area. My mom passed away in 2010 and my dad a year later. My sister and I decided to sell the house, as neither of us wanted to face the memories over an extended period of time. We went with an agent who listed it for $799,000. This was at the end of the first housing crisis, but he said Noe Valley was desirable and he was intentionally listing it lower than the real value so that we would get multiple bids. Well, we did. The winning bid was $1.1 million, all cash.
Fast forward three and a half years later. I looked at Zillow a few days ago and the very same property, no improvements since we sold the house, was now estimated at $2.1 million.
A bubble? Uh, YEAH.
"The winning bid was $1.1 million, all cash."
Does this not make you a one percenter who we all are now required to hate? It is the law, by Dear Leader Obama executive order, after all...
LOL. I split the money with my sister. So that might makes us 2%'ers. Does that mean we're only hated half the time?
Hey, if Dear Leader and Hillary(!) order it...
Was it a tulip shaped house?
;)
a friend, in hindsight, had the bad timing to put his house up in 2009, on Noe right across from the hospital, beautiful huge house 4 levels, garage, etc., for $2.2mil, would surely get way more than double that now...
'Face the Memories'?
Yeah. As in being constantly reminded that your parents are gone. We sold the house about two months after my dad died and about 16 months after my mom died. Losing both parents (even though Dad was 90 and mom 86 when they went) in such a relatively short amount of time would have been an open wound for us. Hard to explain logically. Plus, there was no way I was going to have rental property in the USSF. They have draconian rent control laws.
$2800 to live in Oakland, a city whose police force issued a list of crimes to not bother calling them about.
http://www.sfgate.com/crime/article/Oakland-cops-not-coming-unless-crime-is-violent-3181544.php
Visited SF a couple of years ago on vacation. SF was great. I thought Oakland though was horrible. I can't imagine paying those prices to live in the hood. It helped confirm my belief that people in CA live in an alternate universe.
Oakland hills are just as nice as Berkeley hills, kickass views and amazing architecture all over....the foothills along 880 are Dangerous.
if only we were all so lucky as to live in a town where the government would just DO NOTHING.
In the future, they may need to pay premium for water.