After years of rapid growth, Bay Area rents continue to increase but are finally showing signs of a slowdown. That said, the region remains among the priciest in the country, and renting a one-bedroom is likely to cost over $2,000 in cities where jobs are plentiful, such as San Francisco, Oakland and San Jose.
Trends in the rental market are tricky to track, because a single clearing house of price data doesn’t exist as it does with home sales that are entered into county recorders’ offices. But at the start of a new decade, industry experts are noting the decline in the rate of growth in 2020.
Overall rent in the greater Bay Area in 2019 increased 1.2 percent year-over-year, marking the slowest rate of growth in more than two and a half years, according to Rent Cafe. This number was also under the 3 percent bump rents saw nationally.
Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, is noticing the slow growth, noting the breakdown of regional data from Yardi Matrix with a 2.6 percent year-over-year increase in San Francisco, 2.3 percent in the East Bay and 0.5 percent in San Jose.
“Several years ago, we had year-over-year growth exceeding 10 percent, so [this is] a sharp deceleration,” Rosen said.
Rosen cites three main factors impacting prices. First, new supply is flooding the market, especially in Oakland and the Silicon Valley. Second, skyrocketing rents in the last decade mean the region has finally “reached a rent level that pushes against affordability ceiling for many households,” he said.
Finally, a substantial increase in “out-migration,” with people and jobs leaving the region, is making the market less competitive. “This is caused by high cost of housing, much higher effective tax rates, because of the new tax law limiting state and local income tax deductions, and the general deterioration of quality of life,” Rosen explained.
Chris Salviati, housing economist with Apartment List, agrees that the 2019 data reveals the Bay Area market has flattened and noted that the region’s allure as the best place in the country for jobs may be fading.
“Even though the economy remains hot in the Bay Area, a lot of other cities in other areas of the country have started to thrive,” Salviati said. “There are burgeoning tech scenes in other cities. If you wanted that high-salary tech job, the Bay Area was once the only place to come. Now, other places can offer similar opportunities at a lower cost of living. It has become less attractive. That inbound demand is cooling.”
But while the nine-county region and surrounding counties may finally be leveling off, there are still some areas where rents are seeing significant growth.
“When you look at the aggregated numbers, they all say there’s been a slight pull-down,” said Doug Ressler, a business intelligence manager with Yardi Matrix. “What’s really happening is the suburban areas are pulling down the numbers. The central core is going like gangbusters.”
The average San Francisco rent at the close of 2019 came in at $3,688, which was 2.1 percent higher than the same time last year. Oakland, with a median rent of $2,908, saw a 5.4 percent jump. Meanwhile, outside the core urban area, Richmond ($2,151) and Petaluma ($2,292) showed the most significant rent drops in the Bay Area — 7.8 and 2.7 percent year-over-year, respectively, according to Yard Matrix.
Despite the leveling off, Ressler said he expects the market to remain “very robust,” especially in Bay Area cities.
“The Bay Area is landlocked,” he said. “That core is a magnet for a workforce and a magnet for upper-median income. The supply has been limited, which has been allowing the rents to go up.”