July 12, 2019

The San Francisco real estate market is often associated with the words ‘housing crisis’ and ‘housing bubble.’ It’s understandable, cause the main problem of this region is the tech industry professionals making this area home to the biggest and most successful startups.

Everyone will agree that SF Bay Area is among the best cities for entrepreneurs, but at the same time, it becomes more and more clear that you’ve got to be really wealthy to be able to rent in San Francisco.

In today’s post, we want to dive deeper into the long-term rental market of this city and help you understand how it works and find out what are the potential pitfalls of renting in SF.

The first price drop in seven years means nothing

Earlier this year, the Core Logic company reported that the median house price dropped by 4%. It’s worth mentioning that this is the most significant price drop for the last seven years. However, is it really an upward trend? Is the market recovering and actually becoming more affordable for regular people of the working class, average SF residents?

The short answer is ‘No.’ But let us explain to you why and what you can do to find the cheapest possible rental in this hot and crazy market.

Do you know what the average rent price in San Francisco is? It’s $3,612 and, let us assure you; it’s not like it plans to go down soon. The nationwide average rent price is $1,175. Yeah, the difference is huge. A one-bedroom apartment will cost you around $3,600, while a two-bedroom apartment may go as high as $4,600.

The SF real estate market is about to face a significant spike again due to the number of upcoming IPOs from Silicon Valley companies this year. Lyft, Pinterest, and Uber are already live. Airbnb plans to join them. Let’s see how IPOs can influence the housing market of this area.

The problem of newborn IPO millionaires

IPO is a huge step in the life of any company. We’re living in the times of startup giants going live on public exchanges and becoming millionaires (some of them— billionaires). Years and years, startups teased their employees and top management with the possible IPO and millions of dollars flooding the company after.

Statistics say that even if just half of the most prominent Silicon Valley IPOs will happen, the city will witness millions of newborn overnight millionaires and billionaires. We’ll wake up in the whole new market where young millennials will buy houses, apartments, boats, cars; they’ll be able to buy an apartment or house they like. This means that every house seller is a possible millionaire as well.

That’s the reason why the buy/sell segment of the SF housing market is shrinking. People take their houses from the market and decide to wait a bit more. Once all of these IPOs happen, they’ll be able to sell their property with a way tastier price tag. That’s also the reason why some landlords may consider selling their rental units instead of leasing them on a long-term basis. The housing bubble may explode in the upcoming years, and no one wants to miss this opportunity to get the most out of their property investments.

Winners and losers of San Francisco housing crisis?

While rent prices do not plan to go down, landlords of San Francisco can get the most out of the market, no matter the part of the city they have a property in. Secretive bidding wars are happening behind the closed doors, and anyone who can offer a few hundred more will get the place if the other prospective tenant isn’t able to bit that offer.

This market can be saved by either more transparent price negotiation tools or the new and more substantially re-worked rent control ordinance.

The real losers of this situation are the regular workers, firefighters, teachers, drivers, anyone who lives in San Francisco and does not have an opportunity to invest a lot in their monthly rent payments.

The current market situation hurts every tenant, even those tech industry specialists getting their six-figure salaries. Even they struggle with apartment hunting and have to put a lot of work in finding the best place to rent in San Francisco.

What about rent control?

San Francisco has the rent control ordinance for a long time now. However, some people are getting confused and believe that the ‘rent control’ means that the state laws set the maximum amount of rent that a landlord can collect monthly. No, it doesn’t work like that.

Most of the SF tenants are covered by rent control. This means that a landlord can only raise the monthly rent by a certain percentage or amount. The amount is tied to inflation.

Currently, the annual increase amount cannot be higher than 1.6%. Here is a pitfall of the rent control — it does not affect the initial rent price when you rent a vacant unit.

So, basically, it does help tenants to avoid unfair increases, but it doesn’t affect the initial rent price that a landlord can set for his rental.

Also, there are a few significant exceptions in the rent control coverage that you should know about: single-family homes for rent in San Francisco are not covered by the rent control, as well as the SF condominiums. In these types of rentals, you’ll have the eviction protection, but you won’t have the rent increase protection.

How to find a cheaper option for the San Francisco rental market?

The idea of hunting for a more affordable apartment is simple: you don’t look for an apartment for rent in Los Angeles itself, you try to find affordable housing options near LA. The same works for SF, NYC, and other hot markets of the USA.

If you have a tight budget and want to save on rent, you’ll have to review the option of living in the SF suburbs; neighborhoods that are close to San Francisco still have affordable options on the market. Yes, you’ll have to waste time on a daily commute, but the amount of money you’ll save monthly will genuinely surprise you.

Here are the top five San Francisco neighborhoods, you might find a perfect fit for you:

South of Market (View Rent Comp Report)

Average one-bedroom: $3,440

An urban area with the industrial landscape. The thriving nightlife compensates the missing outdoor green space, making the life of an average hip millennial pretty fun. A median rent number here is way better than anywhere in the city.

Art galleries, entertaining events, and creative spaces in the converted warehouses — all the elements of the trendy neighborhood are included.

Lakeshore (View Rent Comp Report)

Average one-bedroom: $2,754

Let’s say you’re more into the green outdoor lifestyle. We have a great neighborhood for you — the Lakeshore. Close to the Pacific Ocean, it’s a real gem for those who want to distance from the overwhelming urbanization.

Kite flying, fog rolls, and relaxing outdoor spaces will make your life in Lakeshore very enjoyable. With the rent price lower than the city average, Lakeshore opens its doors for those trying to save some money and rent a budget-friendly apartment in San Francisco.

Potrero Hill (View Rent Comp Report)

Average one-bedroom: $3,665

When people in SF hear the words ‘hidden gem’, they think of Potrero Hill first. This neighborhood can even be called a bit undiscovered. At least, those living here want to believe this. That's cause the life here is a bit quiet and it feels like it’s located close to nowhere.

Don’t get scared by the word ‘isolated.’ People here are super-friendly, and those who live here enjoy spending time here in the local community. If you’re looking for a calm residential area, try Potrero Hill.

Financial District (View Rent Comp Report) 

Average one-bedroom: $3,100

It’s a beautiful historic neighborhood with lots of dining options and entertainment venues. You can find the oldest and finest restaurants here, dozens of bars, Italian cafes, and local experiences.

The Financial District is the place where lots of businesses started and where you’ll always find yourself in a permanent move. Here you’ll always stay motivated and hungry for success.

West of Twin Peaks (View Rent Comp Report)

Average one-bedroom: $2,748

A neighborhood with lots of condominiums and 3-bedroom apartments for rent. The West of Twin Peaks area is giving you the vibe of ‘getting away from the city,’ but at the same time, you’ll be able to get to the closest restaurants and entertainment venues in less than 25 minutes. The crime rate is the lowest of all, but at the same time, the number of restaurants and stores is close to zero as well.

This means that you’ll have to commute to those located close to the edge of the neighborhood. West of Twin Peaks is a family-friendly area with private and public schools available for your kids.

About the Author: Alex Tkachenko is an editor of Rentberry and Landlordtips blogs, and an experienced specialist in the tenant-landlord laws. He performs in-depth market research and provides his expertise in property management
niche to those who seek it online.

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