The novel coronavirus outbreak has turned everything about living in San Francisco upside down. Will the crisis also upend the most expensive rental market in the country?
In January, the median market price for a one-bedroom in the city on some platforms was $3,500. It would be awful irony for market rent prices in SF to significantly plunge at a time when most renters weren’t primed to take advantage of it—but that inability to pay is precisely what would drive any price depression.
“If unemployment soars, especially if it’s hitting younger people in their 20s and early 30s hard, [...] rents will probably be hit quite hard,” says Patrick Carlisle, an analyst with Compass Real Estate.
Carlisle tells Curbed SF that younger workers who arrived recently in SF in search of high-paying jobs may “pull up stakes” and relocate in the face of joblessness and still-soaring rents. He compares this scenario to the bursting of the dot-com bubble 20 years ago, after which rents dropped quickly and dramatically as landlords had to chase after new renters with far less cash on hand.
Since that was a different time and a different crisis, he cautions that it’s too soon to tell if history will repeat itself. But it’s certainly not an implausible scenario.
SF-based data scientist Jay Feng offers a similar hypothesis, telling Curbed SF that “the amount of people moving out of the city will supersede the number of people moving in” and increase rental supply the hard way, concurring with Carlisle’s suggestion that layoffs and furloughs will push workers out of SF in such volumes that rent prices will have to fall.
On the other hand, Wolf Richter, finance writer for Wolf Street, tells Curbed SF that the current circumstances are perhaps too unusual for making accurate market predictions. Shelter-in-place orders are a difficult variable to account for; he suggests that it’s hard to know what the renting market will look like when people are free to move about and businesses can reopen.
Nevertheless, he admits, “I don’t see any reason for there to be upward pressure on the rental market.”
Noting the mass layoffs and job loss affecting the area, he wonders, “Are these people going to stick it out until a new job emerges, or are they going to leave and return to Mom and Dad or whatever?”
Anthemos Georgiades, CEO of the rental site Zumper, notes that his site’s search traffic is down 30 percent, and inventory on Zumper recently dropped 12 percent week over week, either because landlords aren’t able to show homes or because tenants who previously planned to vacate are no longer in a position to move. [Correction: Georgiades actually said that search traffic for SF homes generally is down 30 percent, not specifically on Zumper.]
“Rents will most likely feel downward pressure the next few months as people pause their moves and apartment complexes may offer more specials/rebates that will contribute to lower prices,” he tells Curbed SF.
Georgiades warns that the effects of the outbreak could be elastic and likely to return to the old status quo quickly once people feel the outbreak has ebbed.
Chris Salviati, economist for Apartment List, says that he too expects to see people moving less frequently in the coming months, citing eviction moratoriums and “general uncertainty.” He suggests that even a short-term dip could push landlords to cut prices in hopes that the appearance of a bargain will lure anxious renters.
“But given the temporary and uncertain nature of the present situation, it’s also possible that they might hold out on lowering asking rents until things have settled down,” Salviati adds, saying that if a great many people delay moving now and then take the bait all at once, that surge could wipe out any potential for significant declines.
He suggests a possibly tiered response in which prices on the most expensive rental listings drop while cheaper units get more competitive, as stock market woes and looming recessions push renters down the economic ladder.
But Sam Radbil, spokesperson for rental site Abodo, tells Curbed SF that while it’s too early to say for sure, “We don’t foresee a massive drop in rent prices in any major city, even those hit hard by the coronavirus.”
Small decreases are likely in the short-term—in fact, he says Abodo has already seen some prices falling—but “it will take a huge lack of interest from renters, over the course of a few months, to significantly push down rent prices in SF and other major cities.”
Ultimately, the crux of the question rests on how broadly the outbreak changes San Francisco. If life returns to normal in a few months, then that normal will likely include the same rent crush of the past decade.
Changing that trend would mean changing something fundamental about renting But this is the first time in well over a decade that such a thing has seemed truly—perhaps imminently—possible.