Average apartment rents in San Francisco were relatively unchanged in the fourth quarter of 2012 while rents actually dropped 1.4 percent in the South Bay according to the latest RealFacts report.
Following a few years of double-digit annual growth, as plugged-in people knew expect, have San Francisco rents “hit a wall” as RealFacts purports?
Do keep in mind that RealFacts’ figures are based on surveys of professionally managed apartment complexes with 50 or more units (which aren’t necessarily the norm in San Francisco) and reflect asking rather than effective rents after incentives.
Surprised By A Spike In San Francisco Rents? There’s No Excuse. [SocketSite]

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Comments from “Plugged-In” Readers

  1. Posted by badlydrawnbear

    Unless local wages increase, yes.
    Interestingly the higher wages/cost of living goes the more likely the very engine of the Bay Areas success, Silicon Valley, will just pick up and move to a lower cost area for them and their employees (aka ‘choking on success’).

  2. Posted by lol

    badlydrawnbear, employers wish it would be so easy.
    But the reality of tech is that it is a talent-based industry. Companies have to follow talent where they will find it. If you build a great business model in the boonies, you won’t find that many interested/interesting employees.
    Young talent will come here for the lifestyle and the jobs. Then they switch companies as desired and there are enough possibilities locally to decide to stay in the BA for a while.
    I saw an hilarious add from Texas trying to woo New Yorkers into moving for the lower taxes. If you have to do this, then your state is not such an attractive proposition. I am not saying this cannot happen. Just that it’s a bit artificial and forced when it does.

  3. Posted by EBGuy

    Are rents hitting a “buy versus rent” wall? Downtown Ess Eff is only a BART ride away.
    A total of 15,853 resale condos changed hands in the Bay Area in the first 10 months of 2012 , the highest level for that time period since the bubble days of 2006, when 16,720 sold, according to San Diego DataQuick, a real estate information service.

  4. Posted by tomstone

    Yup – places that are priced too high (in terms of rent) are staying empty for multiple months. I think the $6 K/month market will be first to fall. There will still be plenty of interest around the $5 K/month or less market. But the days of $14 k/month rent are over thankfully …

  5. Posted by Brahma (incensed renter)

    lol, your point about “tech” is well taken; I’m assuming you mean start-up businesses in Information Technology or Web-focused firms, but for businesses in general, Texas has been at this game for a while.
    Although it may seem like a situation where “if [Texas] has to do this, then [their] state is not such an attractive proposition”, the business reality is that for more mature firms, it’s executives who decide when and where to move operations, and that’s driven mostly by the bottom line, and from that vantage point, Texas is very attractive.
    Texas does this because it works. Even if it is artificial and forced.
    Speaking of the Bay Area in general, I personally have friends who just in the last eighteen months, were forced to leave employment at AT&T and Chevron because the groups they worked in were being relocated to Texas.

  6. Posted by lol

    Brahma,
    My friends at ORCL, AAPL, GOOG, YHOO, MSFT or FB would not move to Texas if their companies decided to move out of the BA.
    It’s not really start-up vs old tech, but an overall talent pool these days.
    For instance a friend of mine just left ORCL to follow his old BEAS boss in his new start-up venture. There are no walls.

  7. Posted by badlydrawnbear

    Look I am not saying there will be a mass exodus but business can and do move (Boeing relocated it’s headquarters from Seattle to Chicago not so long ago)
    The more mature employers can certainly pick up and leave if they want. If Google/Apple/Facebook decide to head to relocate their headquarters another city it is likely the majority of their highly paid workforce would follow.
    I know the Bay Area is the bestest place on Earth but that doesn’t stop IBM from being headquartered in Chicago, Microsoft and Amazon in Seattle, Intel in Portland, Fiance in New York, etc.
    Do I think it’s happening tomorrow? No. But high salaries and high cost of living are primary drivers of expenses and once you have gone public and have share holders to answer too, well, they might not care about how awesome the Bay Area is if the stock isn’t performing.
    on a somewhat related note …
    New Housing Fears: Home Prices Are Rising Too Fast
    http://www.cnbc.com/id/100397644

  8. Posted by anon

    All I can offer as an anecdote is that a friend of mine relocated his company to LA for a few years then ended up moving back to the bay area. Why? Because there is infinitely more talent here to choose from. One of the biggest strengths of silicon valley is the proximity of all the talent. Move a tech company to Iowa and it will ultimately fare pretty poorly.

  9. Posted by Brahma (incensed renter)

    lol,
    I understand completely. The friends I mentioned above all left their jobs at AT&T and Chevron rather than sell their homes and move to Texas when those companies wanted them to. Precisely because they like living in the Bay Area, they were reasonably self-assured of finding another job in the Bay Area, and they were all well aware of the adjustments involved in moving to and living in Texas.
    None of them were renters, though…so I guess that anecdote isn’t relevant to a thread about rental prices. Someone renting is going to be a lot easier for a company to convince (force) to relocate, so I guess that’s why market fundamentalists like the idea of making homes harder to finance.

  10. Posted by curmudgeon

    People are focused on tech, because that’s where the marginal growth is. But as Brahma pointed out more mainstream companies will relocate, if not HQ then substantial portions of their business. This is nothing new…this has been happening for years. But the simple fact is there are limits, and perhaps we are temporarily hitting one.
    Even in tech, other areas can certainly be attractive, although we certainly have a much more compelling story in the tech area.

  11. Posted by anon

    Look I am not saying there will be a mass exodus but business can and do move (Boeing relocated it’s headquarters from Seattle to Chicago not so long ago)
    Which was less than 200 total employees – it was the classic executive-office-moves-but-nothing-else move. There are still 40,000+ Boeing employees (in addition to tens of thousands of contractors) in the Seattle area.

  12. Posted by anon

    I know the Bay Area is the bestest place on Earth but that doesn’t stop IBM from being headquartered in Chicago, Microsoft and Amazon in Seattle, Intel in Portland, Fiance in New York, etc.
    Most of these are wrong, BTW. Intel is still headquartered in Santa Clara, IBM has long been headquartered in Armonk, NY, Microsoft is headquartered in Redmond, WA (close to Seattle, I’ll grant you), etc. I’m assuming you mean generic “finance” for New York, rather than some company called Fiance?

  13. Posted by badlydrawnbear

    yeah sorry about the copious typos

  14. Posted by lol

    Brahma,
    True, renters could move more easily. Owners can leave too, because of a very good rental market for landlords with available units. It’s actually a choice some neighbors did 2 years ago. They move to WA and rented out their house. If you have little or no mortgage, it’s actually a great play.
    But the reason why tech people stick around: The BA benefits from a “need” as much as a “want” effect. You need to be there if you’re in tech and want to have the best career options. You want to be there because of the lifestyle.
    There are many such places in the country, of course. But we’re lucky enough to have many of the best of breed tech companies.

  15. Posted by djt

    Let’s say the firms that employ all these highly capable people leave.
    The employees stay.
    Suddenly, there are thousands of capable employees who are unemployed.
    Voila! New businesses. Where the smart people are. Which is here, since they stay when their companies leave.
    The business world is not static.

  16. Posted by PE anon

    Drifting off topic from rent ceiling, but… This is only anecdotal, but one $1bn+ PE firm relocated a decent part of its ~50 person team to TX and another is seriously considering the move. A local office will remain for the execs who want to stay, but those who want to move have done so (equal mix of top execs in both places). Maybe in time they will fund more businesses in TX, or maybe they will travel back to SF often and even keep second homes here…but taxes for some of these big earners will be calculated and paid in TX.

  17. Posted by CVLawyer

    Those PE folk should have moved to Nevada or Alaska, if taxes are the sole issue . . . .

  18. Posted by lol

    People are not leaving in droves. Much John Galt wishful thinking in these past few posts. Reality is people still flock here and companies still keep snapping up tons of square footage at record high lease pricepoints, a sign SF is a very desirable business city.
    Rents have ramped up a lot and we’re probably bumping into a technical level. On one side new people can only pay so much compared to income. Landlords will not let them go overboard anyway. On the other side some existing renters paying high rent are moving towards a purchase with rock bottom rates.
    I think it’s a healthy pause. Purchase prices will probably stop their neckbreaking ramp as well soon I hope.

  19. Posted by I Left

    “Tech Tech Tech and Tech” blah blah blah, you would think this was a one industry town? Pretend all you want, but Government Services, Education, Tourism and Healthcare are all huge (and larger) employers in the city, and for those of us who do not work in Tech, salaries are not rising to keep up with housing in San Francisco. For non Tech professionals, the answer is becoming obvious with each passing month. I moved out of S.F. to a much larger city with better public transportation, high density walkwable neighborhoods AND a starting salary 15% higher than my salary after 8 years working in “the city”. If you do not work in Tech, San Francisco just seems like an an expensive bad weather version of San Deigo. BTW-I have friends who lived in Noe (renters) who just moved to San Diego and although she used to work in “Tech”, she has decided to have kids and stay home. With MUCH lower housing costs down south they can live on one salary and own in San Diego vs renting in San Francisco. Their decision was that he still works as a lawyer and she can finally have children and eventually select what career to move forward with as the children are of school age.
    (My Example: I went from renting a 1bd with no parking in an “o.k.” San Francisco neighborhood to living in a top end highrise with parking, pool, etc. in a neighborhood similar to Nob Hill/Russian Hill in a MUCH larger city, PLUS my rent now on my 2bd is $900 less than my 1bd in S.F., and don’t forget my salary is higher here. I am an architect btw with a career specialty of working on hotels)

  20. Posted by badlydrawnbear

    Good points ‘I Left’
    My overall point is people always seem to think the party can’t end but it always does (the North East and steel, Detroit and autos, the South East and textiles, Southern Cal and aerospace)
    During the height of the housing bubble I distinctly remember a surprising number people of moving instead of buying inland (the only places the could afford despite dual tech incomes) and commuting into Silicon Valley. If cost of living gets to high and salaries don’t keep up talent will leave.
    And if you think the start up culture can’t migrate well …
    Google Fiber Is Igniting Kansas City’s Startup Scene
    http://www.huffingtonpost.com/2013/01/14/google-fiber-kansas-city_n_2467960.html

  21. Posted by Dan

    SF isn’t the next Detroit, and KC isn’t the next SF. Tech is here to stay, even as some individuals and companies move away, as others arrive. Rent and home prices rise and fall in fits and starts, with an overall trend upwards as long as the local economy stays good.

  22. Posted by NonTech

    Agreed Dan, but just remember, the large majority of San Franciscans do not work in Tech related industries, yet we must pay the same high costs of housing. (Neither my partner (professor) or myself (Construction office mgr) work in Tech) As attractive as the Bay Area is, travel broadens horizons and as metioned above, a recent trip by us down the coast to San Diego reminded me that we do not have to pay high housing costs to enjoy what is good about California. There is life outside the bubble.

  23. Posted by lol

    Sure some people leave and some people go. Same thing for companies. It’s a living thing. Not everyone will stay long term. The net results are increasing median income, population and cost of living.
    Talking about incomes, one tech job creates several non-tech ones, and not at rock-bottom pay, otherwise please point me to the $10/h guy who could work on my kitchen…

  24. Posted by anun

    With the way the tech industry is touted around here you’d think everyone working at google was a millionaire. Everyone I know working at these big tech companies make peanuts.

  25. Posted by anon

    ^They must be crappy employees then. I don’t know anyone who works at Google or similar companies who isn’t paid at least six figures (even very low-level folks) – hardly peanuts. Not millions, of course, but more than double the median income for the country.

  26. Posted by modernedwardian

    we own a 2 unit building in noe and rent one of the units.
    last july’s craigslist rental ad was answered by 8 in technology, more specifically mostly PhD computer scientists and usually Google employees (often renting collectively), 2 applicants worked in “sustainability” at a large energy provider and with a hedge fund (both top school MBAs),and one with a solar energy job who was hoping to form a group living situation.
    half were nonUS citizens.
    there were no architects, lawyers, doctors, bankers, engineers (aside from computer science types) and certainly no artists, bakers, government employees, teachers, nurses, or musicians.
    looked at craigslist today and noe valley rents are up $300 or more then we’re charging for a remodelled flat; the only rental charging less less has “vintage charm”.
    we had a lot of takers from a small pool last year; i suspect we’d have the same if we listed again.

  27. Posted by anon94123

    @modernedwardian, I think that says more about who wants to live NOW in Noe vs. what types of careers one may encounter in other neighborhoods of San Francisco. In my part of the Marina I am surrounded by attorneys it would seem, and when I lived in Cole Valley many of my neighbors were UC doctors. The “artist” crowd left San Francisco long ago – try Silver Lake and other eastern neighborhoods of Los Angeles to locate what was the San Francisco arts community.

  28. Posted by Willow

    “…in a neighborhood similar to Nob Hill/Russian Hill in a MUCH larger city, PLUS my rent now on my 2bd is $900 less than my 1bd in S.F., and don’t forget my salary is higher here.”
    I left: To which city did you actually move? It is obviously not New York, Chicago, DC , Seattle or Los Angeles. Rent for an equivalent Russian Hill neighborhood 2BD is not going to be $900 in any of those cities. Houston maybe? Please do tell…

  29. Posted by Willow

    ^ Never mind…I misread your post. I see the “$900 less”. I’m still curious though where you ended up…I’m thinking of moving to DC but still struggling with the idea of dealing with east coast weather.

  30. Posted by justin

    Willow, for me part of the equation is not just neighborhood, but housing stock itself. San Francisco has a horrible rental housing selection compared to most cities. Unmaintained wood built structures with poor sound insulation and grouchy (because of rent control)landlords.
    Take the often discussed (on this site) Aqua tower in Chicago. (I recently stayed in a hotel on the lower floors there) There is no rental tower in San Francisco like it. 86 stories, 3 pools, huge gym, PARKING, and 2 blocks off Michigan Avenue. 1brs are about 1,800 in the new tower and readily available, but what do we have to compare? Where in San Francisco could I find a new 67th floor corner 1br for that with parking?
    http://en.wikipedia.org/wiki/Aqua_(skyscraper)
    Washington is an amazing city. MUCH better public transportation and a huge selection of very nice rentals to select from. For me the Washington winter is not as difficult as July and August which can be a steam bath there.

  31. Posted by REpornaddict

    “Washington is an amazing city.” “For me the Washington winter is not as difficult as July and August which can be a steam bath there.”
    is it just me, but I find those two sentences slightly moronic. Take out a really cold winter, and an even worse summer, and not really much left to enjoy, for me anyway, being the outdoors type

  32. Posted by REpornaddict

    that was oxymoronic, not just plain old moronic(!)..really sorry..(spellcheck??)

  33. Posted by Anonichiban

    Some of these same posters who are talking about a talent drain/suck are the same ones who doubted rising rents, talked about people instead moving en masse to suburbia, screamed at anyone suggesting the SF RE market had begun turning bullish, loudly argued about tech leading the SF economy in the near future, disputed the southward gentrification, and on and on. Now it is talent drain, again? Lol. Get lives perpetual wrongsters! And where is Tipster to eat his crow, btw? Nowhere to be found? Way to go lettin him drive content erroneously for two plus years, Ed!

  34. Posted by lol

    Bulls were wrong to deny in 2008 that a big wave was going to undercut prices. But it doesn’t mean their opinions were not of value, au contraire.
    Same thing for Bears. We need them to keep us grounded. Tipster going against the cycle didn’t mean his post didn’t make sense. His absence could make a case for bears, in a contrarian sense, as the last of the permabears appears to have given up…
    There are cases to be made from both sides, though many posters have their own brand of bias. Some need to sell property for a living. Others need to collect good rent or love to see their equity rise. Others want cheaper deals to get into the market. Then you have a few with an ax to grind…

  35. Posted by The Milkshake of Despair

    Welcome back Anonichiban. But give ole tipster a break. Though he wasn’t totally correct (who is?), he did promote some interesting discussion and his point of view was worthwhile. Especially his PR/Psyops perspective.
    (tipster has also moved to south Florida, partnering with Satchel to exploit the Fed bolstered markets via day trading. And drive his kids to and from St. Xavier’s)
    (that last comment was totally fabricated)

  36. Posted by Morgan

    Did Fluj move to Satchel’s Florida neighborhood also? Is that where plugged in people go to live when they no longer plug in?
    (Back on topic) The Bears DO keep this site grounded, indeed. The best place on earth boosters get tiresome as well.

  37. Posted by nanon

    I’m surprised that there is no talk about the role of rent control in “locking up” properties. Then as the rate of rent increases accelerates, there is a point where the circle is self-reinforcing. i.e. in a closed system of 100 units, if on a rolling average of x years, let’s say the average is for 50 to be occupied by people who “can’t afford to move” because they have been in their place for a lot of years and rents have gone up. But when there is a real supply squeeze, you get people who moved in two years ago who can’t afford to move thus locking up, another 25 units. Which further constricts supply and further increases not only rents but the rate of rent increases.
    I guess there has to be a limit to it, but I know a reasonable number of people who have signed a lease in the last few years who feel they can’t afford to move. And I have an admittedly small sample set of friends who have been looking to buy — and this is largely due to where rents are right now rather than a great desire to own.

  38. Posted by lol

    In a closed environment, this would be the case, nanon. There are few (if insufficient) safety valves though. At a certain level of resale price, landlords could want to convert a rental building into TICs. They need to buyout the tenants, or they can suck it up and do an Ellis eviction. Another safety valve is the opportunity given by high rent and high resale prices. A condo owner can decide to monetize his property and move out of town. He can also decide to cash out his chips if he bought cheap enough. None of these can address the abysmal lack of supply on rentals or resales.
    I know a couple who paid a token rent amount already for 2010 but didn’t jump on the 2009-2011 dip. They’re locked in their dirt cheap Telegraph Hill tiny 1BR. They’re now priced out of houses, priced out of moving into a bigger rental, and can only choose to either move out of town, stay put and put their lives on ice, or become mortgage slaves for an inadequate dwelling. It’s a tiny golden cage.

  39. Posted by joh

    A condo owner can decide to monetize his property and move out of town. He can also decide to cash out his chips if he bought cheap enough.
    You can put me in this category.
    A couple of weeks ago, my employer offered me the opportunity to relocate to Vancouver for a few years. Paid move and paid housing. After discussing it with my wife, I gladly accepted.
    Last month, a guy who rents in our neighborhood told us that he’s paying $3200/month for his place, which is comparable to our condo. 1BR/1.5BA, ~1000sqft, Mission district. Once we’re done refinancing (in process), our mortgage plus HOA dues will be around $2000/month. Unsurprisingly, these ridiculous rent prices factored heavily into our decision to go up north.
    I bought in 2010, taking advantage of $18K in tax credits (fed and state). Based on other sales in my area, I’m sure I could easily sell for 15-20% more than I paid. If it weren’t for the low interest rates and high rent prices, I might’ve been tempted to try to sell before leaving SF. But at this point, it seems silly to do so. I suspect Mission RE and rentals will continue to outperform other neighborhoods in the years ahead.
    For us, the ideal situation would be for rental prices to hold steady for a couple of years, and then dropping back down to realistic levels when we’re ready to return from Vancouver, with the hopes that the renter would voluntarily move for cheaper rent elsewhere (not sure how OMI’s work, but heard they can be ugly).
    With all the buildings in the pipeline right now, I’m guessing rental prices will definitely come down as more units become available.

  40. Posted by Anon ichiban

    “But give ole tipster a break. Though he wasn’t totally correct (who is?), he did promote some interesting discussion and his point of view was worthwhile. Especially his PR/Psyops perspective.”
    Wasn’t totally correct is the criteria? That is so funny. He was hostile every time the notion if someone paying a Craigslist rent ask came up. Now it is well known rents had been climbing. He insisted the population was shrinking. It was growing. He continually mocked the notion of tech growth and pointed to VC blips and dubious “friends’” situations as proof positive. Clearly, tech has been bullish in hiring for quite some time. He disputed at every turn that real estate was rebounding. In fact, it did. All of this stuff was obvious to people who were engaged in current markets. But on and on it went, here.

  41. Posted by funny

    “I know a couple who paid a token rent amount already for 2010 but didn’t jump on the 2009-2011 dip. They’re locked in their dirt cheap Telegraph Hill tiny 1BR. They’re now priced out of houses, priced out of moving into a bigger rental, and can only choose to either move out of town, stay put and put their lives on ice, or become mortgage slaves for an inadequate dwelling. It’s a tiny golden cage.”
    I check in on this site very occasionally and not often enough to post something timely. But some of the comments are hilarious– and over time they are hilarious on both sides. I almost posted a few weeks ago about how self-congratulatory everyone was about buying the low tic of the dip. And comments like this above “It’s a tiny golden cage.” is funny with such thinly-veiled gloat. As if most renters could easily jump on a 20% dip, buy the low and have the money to buy. . .
    It was true for the bears a couple years ago and now for the bulls.
    I’ve always thought there’s more gray area and that a house should be a place to live in. Real estate here always goes up faster than it goes down. It only takes two buyers to bid a place up by nature, but you can’t short sell r/e. But it’s funny how both sides jump on to the short-term and gloat . . .

  42. Posted by Brahma (incensed renter)

    Earlier in this thread, I wrote:

    …the business reality is that for more mature firms, it’s executives who decide when and where to move operations, and that’s driven mostly by the bottom line, and from that vantage point, Texas is very attractive…Texas does this because it works. Even if it is artificial and forced.

    I want to say before someone else does that I was wrong, it’s not just mature businesses that are outside of high tech.
    As far as Texas going all out to entice businesses to relocate, here’s Chronicle Columnist Andrew S. Ross from yesterday; Texas tries to lure California businesses:

    The $24,000 ad campaign running on Bay Area and other radio stations this week — “Building a business in California is next to impossible,” etc. — is part of the $19 billion Texas is estimated to spend annually on tax breaks and other incentives to keep Texas businesses happy and lure companies from other states, especially California.

    Perry may have more to say about that when he appears live and in-person next week in San Francisco, where he is scheduled to meet with local CEOs.

    …Silicon Valley companies like Apple, Facebook, Oracle, eBay and SunPower have expanded their Texas presence, mostly in Austin. Of the 225 companies that moved into the Austin area between 2004 and 2011, 63 were from California, according a survey published…by…an advocacy group in Washington. In December, Chevron announced that it will move 800 members of its Bay Area staff to Houston.…They’ve been lured in part by millions of dollars in subsidies ($30 million in Apple’s case) from Perry’s “deal closing” Texas Enterprise Fund, a cash-grant relocation program.

    Emphasis mine. Like I said, Texas has been at this game for quite a while and their good at it.
    I just heard that Apple is spending about $300 million on a new campus to assemble the iMac, employing about 3,600 workers…in Austin.

  43. Posted by anon

    ^We haven’t had new computer assembly plants for a long time in the Bay Area. The loss is to places like Sacramento, who did have some of that stuff within the last 20 years.

  44. Posted by lol

    It’s not necessarily a bad thing. Added value today is in design and technology. It’s much more interesting to design components of a tablet or fill this tablet up with innovative software than assembling it. People in assembly lines today are there because we haven’t figured how to do their jobs with robots, or at least not cheaply enough. Eventually we will, and these jobs will be gone too. Plus assembling is repetitive and boring.

  45. Posted by Phil

    Is there supposed to be a link to another article here, or am I missing something?

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