homesmillbrae.com

Market-rate housing development in San Francisco will grind to a halt in 2021 as a crop of new buildings opens up and tumbling rents and condo prices combine to shut off the flow of capital into the city’s real estate markets, builders and analysts say.

More than 4,000 new units will be available in 2021, including deluxe condos like the Four Seasons Private Residences on Mission Street and One Steuart Lane on the Embarcadero, as well as rental projects like the final 500-unit phase of the 1,900-unit Trinity Place on Market Street. Those totals are well above historic production numbers.

But new developments, including both neighborhood infill apartments and larger multiphase projects, are likely to be delayed until 2022 or 2023, which could eventually lead to a spike in rents and pricing as the economy recovers.

Currently, 18,000 units that are ready to go — building permits have been issued or approved — have not broken ground, according to analysis by the online real estate publication Socketsite. That is 31% higher than last year and the highest number in a decade.

Eric Tao, a principal with L37 Partners, doesn’t sugarcoat the challenges facing builders nine months into the pandemic.

His company is building 232 condos and a 242-room Lines Hotel at 950 Market St. to be completed next summer. When he talks to investors he starts with the bad news: Rents are down 20%, the hotel market is decimated, office buildings are at 13% capacity and everything that made downtown San Francisco special — restaurants, theater, museums, live music — is shut down.

The good news is that vaccines are being distributed and the situation should be improved by July, when the condos at 950 Market St. open, and by late 2022, when the hotel is supposed to greet its first guests.

“San Francisco is still a ghost town,” he said. “The only silver lining is that we are still constructing, we are not done. If we were open right now we would be underwater.”

While L37 Partners has two apartment projects totaling 500 units that have yet to start construction in the South of Market neighborhood, Tao doesn’t expect investment funds to be available before 2022.

“I’m a conduit for large capital investment and can only deploy capital to build housing when the math is right,” he said. “Right now the math isn’t right.”

The pandemic has turned the housing market chaotic, with suburban single-family homes shooting up in value while the darlings of the tech boom — the amenity-rich urban towers — have seen declines in rents and pricing.

Condo inventory in San Francisco is the highest it’s been in 15 years, which has driven down resale prices by 10% since the pandemic hit. Meanwhile, single family homes in the Bay Area are up 19% year over year.

Bill Witte, president of developer Related California, said that, even before COVID-19, he had assumed that 2021 and 2022 would be down years for market-rate development. His company has several projects, including towers at 98 Franklin St. and 530 Sansome St., that likely will not start rising until 2022 or 2023.

“The rental market is all about job growth, and when there are no new tenants coming into the market there is only so much you can do,” Witte said. “A return to normalcy is a precondition of the rental market recovery.”

Ken Rosen, chairman of the Berkeley Haas Fisher Center for Real Estate and Urban Economics, said he thinks 90% of Bay Area jobs will return within a year but that additional flexibility will allow workers to live farther from the office.

High taxes, bureaucratic delays and quality of life issues — drug dealing, homeless camps and street crime — could give companies less motivation to return to the downtown core or tech-heavy neighborhoods like Mid-Market, slowing down the recovery, he argued.

“My capital markets friends from New York and Chicago are asking, ‘Is San Francisco over? Is California over?’” he said. “I don’t think the city and state leaders realize the crisis they are going to have. The San Francisco Board of Supervisors is not going to have any money to spend if it drives business out. We had the boom, but the boom is over.”

During the three months ending Oct. 31, the median price of an existing condo in San Francisco was $1.2 million, a decrease of 9.1% from last year. But there are signs that the lower prices are driving more activity, said Miles Garber, who heads up research for Polaris Pacific, a condo brokerage. There were 673 resales recorded during the three months ending Oct. 31, a 5.2% increase from last year, he said.

At the new communities that Polaris Pacific is selling, more than 90% of buyers closed escrow. During the Great Recession, in contrast, less than half of in-contract condo buyers closed escrow following the fall of Lehman Bros.

Rich Baumert, a principal with developer 706 Mission Street Co., said nearly all of the pre-COVID buyers at the Four Season Residences project have stayed in contract despite the pandemic. This includes two penthouses scheduled to close next week, one for $11.3 million and one for $12.5 million.

“We have held on to our buyers for the most part,” he said.

At One Steuart Lane, pricing has also not been cut, said Christopher Brandt, Senior Vice President of Asset Management, Paramount Group, Inc. The building will open in the summer.

“Sales are going extremely strong and we have been seeing consistent demand,” he said. “We see this as a once in a generation opportunity.”

But for a region that has been grappling with an affordability crisis, the downturn in market rate development could be somewhat helpful in an unexpected way. The slowdown could lead to a drop in land values and construction costs, which could benefit builders of subsidized affordable complexes.

The Mayor’s Office of Housing and Community Development plans to start work on 1,345 affordable units over the next two years in 12 different projects.

Related California, which builds both market-rate and affordable buildings, is partnering with nonprofits on three of those projects. Witte said it will also break ground in 2021 on affordable developments in Santa Rosa, South Lake Tahoe, Los Angeles and Mountain View.

“Our affordable housing business is busier than it’s ever been,” he said. “We are hiring on the affordable side.”

Mayor London Breed has proposed deferring fees to encourage builders to start work and has pushed a charter amendment that would allow “as of right” development for certain projects that include more than the required level of affordable units.

“The early fallout from this pandemic recession is already preventing new housing projects from moving forward,” said Breed. “We can’t just stand by and let that happen. Our recovery is going to rely on the jobs that these construction projects bring, and we will need the new homes opening in the coming years so we don’t fall back into the trap of seeing huge rent increases once our economy recovers.”

Mark MacDonald, principal of DM Development, which has built or is planning to build a dozen San Francisco projects over the last decade, said he is trying to convince investors that now is the time to put money into San Francisco housing. In 2010 and 2011, in the aftermath of the recession, McDonald bought several Hayes Valley development sites. All turned handsome profits.

“When you look back, 2010 and 2011 was the best time to be making new investments,” he said. “It didn’t feel like it at the time, but all those investments turned into gold.”

J.K. Dineen is a San Francisco Chronicle staff writer. Email: jdineen@sfchronicle.com Twitter: @sfjkdineen

California suffered the steepest outflow of residents via rental truck among all 50 states in 2020, with San Francisco the epicenter of the Bay Area’s pandemic exodus for DIY movers, new data shows.

California ranked last in the nation for migration growth last year, with the largest net loss of one-way U-Haul trucks crossing its border in 2020, the rental company reported Monday. Arrivals to California accounted for about 49.4% of total traffic, down from 49.8% in 2019. California slid down a spot to claim the No. 50 ranking from Illinois, which moved up to 49th from 2019.

U-Haul used data from more than 2 million transactions annually to analyze migration trends, finding that more people left densely populated areas when the pandemic hit, particularly in the Bay Area and New York City. In March, more U-Haul trucks departed all of the 30 most populated U.S. cities than arrived over the subsequent three months.

In 2019, slightly more U-Haul trucks arrived in San Francisco than left, but in 2020, departures made up a whopping 58% of all one-way U-Haul traffic from March to June. Ratios were similar in Oakland and San Jose. And U-Haul said the numbers likely would have been worse if more trucks had been available to rent.

Across the Bay Area, arrivals declined 31% year-over-year from March to December, while departures fell by just 12%, creating the migration gap.

California has been near or at the bottom of the U.S. migration rankings since U-Haul began releasing them in 2016. Victor Vanegas, area district vice president for U-Haul, said in a statement that the high cost of living in the Bay Area has driven a fairly high number of departures, but the pandemic exacerbated the trend.

“We definitely saw an increase in outflow migration out of the general Bay Area and Northern California area,” he said. “But COVID definitely drove that exponentially higher than usual.”

He said the stay-at-home order in March halted many moves, but things started to pick up again later in the year.

“As time progressed, we definitely saw our transactions increase, we definitely saw migration trends out of the general Bay Area and Northern California increase,” he said.

According to U-Haul, the top destinations for its customers leaving the Bay Area during the pandemic were the Sacramento/Roseville area, Stockton and San Diego. Beyond the Golden State’s borders, the most popular destinations were Reno, Las Vegas, Portland, Phoenix and Seattle.

As for the 10 most popular states for people leaving the Bay Area, No. 1 was California (cities outside the region), followed by Nevada, Arizona, Oregon, Washington, Colorado, Texas, Utah, Idaho and New Mexico.

At the other end of the state rankings from California, Tennessee bumped Texas to take the No. 1 spot for arrivals. Texas was the leading growth state from 2016 to 2018 but slipped to No. 2. Rounding out the top five were Florida, Ohio and Arizona.

U-Haul said the migration trends don’t correlate directly to population or economic growth, but rather serve as a gauge of how well cities and states are attracting and maintaining residents.

Kellie Hwang is a San Francisco Chronicle staff writer. Email: kellie.hwang@sfchronicle.com Twitter: @KellieHwang

San Francisco’s housing rental market saw the most dramatic changes among all U.S. cities last year during the coronavirus pandemic, new data shows.

When the pandemic began in March, moving virtually halted across the country. But as job losses rose and workplaces went remote, people started leaving pricey big metro areas in favor of more affordable cities.

The country’s most expensive big city, San Francisco, was the most affected, with rental prices plummeting 26.7% since March, according to 2020 National Rent Report from rental listings website Apartment List. The current median two-bedroom rent is $2,305.

San Jose landed sixth on the list with a 15.2% drop since March and a median two-bedroom rent of $2,035, and Oakland was eighth on the list, declining 14.2% since March and a median two-bedroom price of $1,952. Apartment List estimates the median contract rent across new leases signed in a given market and month.

Rents in principal cities across the U.S., which are usually the largest or have the greatest economic output in the area, fell 9.3% since January, while rents in surrounding suburban cities increased 0.5% since the start of last year. The report reflected a big exception in the Bay Area: Both principal city San Francisco and its neighbor Oakland saw dramatic declines, though Oakland’s was somewhat smaller.

The pandemic also caused vacancies to rise in many large, pricey coastal cities. San Francisco saw a big spike in available apartments, which in turn pushed rental prices down. Apartment List’s local vacancy index more than doubled from 5% before the pandemic to nearly 12% by August.

“In turn, landlords had to drop their prices to attract the renters that were still interested in moving,” said Apartment List research associate Rob Warnock. “This phenomenon took place in many expensive cities throughout the country, but none more dramatic than San Francisco.”

Other cities, including San Jose, Seattle, New York and Boston, had similar patterns. But some more affordable cities saw vacancies decline and rents trend upward, including Fresno; Albuquerque; Boise, Idaho; and Gilbert, Ariz.

Seasonal declines are normal this time of year, but Apartment List found the drop nationally in 2020 was slightly steeper than usual. The national rent index declined 0.4% from November to December, compared to 0.2% to 0.3% from the past three years.

“Rent declines in November and December are not unusual,” Warnock said. “Moving requires a lot of time and money, so during the winter months typically people direct those resources to holidays instead of moving. That said, in San Francisco, this season’s rent drops are steeper than previous years since the market was already in free fall going into this slower season.”

In 2019, rents in San Francisco decreased 0.9% in November and December. In 2020, they dropped 3.8% in November and 2.7% in December.

Another major listings website, Zumper, put out its December rent report this week. While its methodology differs from Apartment List in favoring newer apartments available on the market, it also showed major declines in San Francisco rent prices. In fact, the median one-bedroom price in San Francisco was $2,600, the lowest on record for the metro area since the company began collecting data in 2015. The previous low was $3,270 in February 2017.

But recent months show signs of the decline easing, and Zumper analyst Neil Gerstein said drops might be in the 0% to 2% range rather than 3% to 5% range moving forward.

“Decreases have certainly slowed in San Francisco and in the Bay Area in general,” Gerstein said. “We generally believe decreases are slowing because there has been an increasing number of new renters coming into the Bay Area — hopping on unheard-of deals — to replace those that have left.”

According to Zumper’s Bay Area Metro Report, San Francisco again tops the list of most expensive cities, while Milpitas came in second with a median one-bedroom rent of $2,630, and Cupertino in third with a rent of $2,510. Vallejo was the cheapest, priced at $1,390, Concord second-cheapest at $1,700, and Richmond third at $1,740. Even so, Milpitas has the fastest rising rent in the Bay Area, going up 10.5% year-over-year.

Nationally, some of the normally priciest rental markets have dropped out of the top spots, including Seattle and Miami. Cities such as Santa Ana and Providence, R.I., surged ahead of them in rental prices, according to Zumper. Very expensive rental markets such as the Bay Area are still pricier than some fast-growing cities, but that could change.

“If trends continue, then we could see some California cities overtaken by fast-growing cities in terms of price,” Gerstein said. “Newark, for instance, is only $70 cheaper in one-bedroom median rent than San Diego as of last month, meaning that Newark could soon overtake San Diego.”

According to Zumper, San Diego’s median one-bedroom rent is $1,800, while Newark is at $1,730.

While some people who have left big cities won’t come back, Warnock said that when the economy rebounds from the pandemic, new residents will move in, especially since prices have declined.

“Just because people will be working remotely does not mean they won’t demand the amenities of city life,” he said. “So I think the future of remote work includes plenty of workers living in cities, even if they are working for companies headquartered in a different city than their own.”

Warnock said because of the seasonal effect on rental prices, he thinks rents will stay low at least for the next few months.

“Local prices won’t come back up until there is a notable influx of new residents, which of course depends on the pandemic getting under control and job centers opening back up, and it’s hard to say exactly when that will happen,” he said.

Kellie Hwang is a San Francisco Chronicle staff writer. Email: kellie.hwang@sfchronicle.com