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Axios San Francisco Thought Bubble

Axios San Francisco

Data: Moody's Analytics; Table: Kavya Beheraj/Axios

The average asking rent in the San Francisco metro area was up 9.5% at the end of 2022 from the previous year as rising mortgage rates led to an increase in demand for rental apartments, according to a new report.

Why it matters: The San Francisco area has a well-known housing crisis and high rents compound those challenges.

By the numbers: The average rent in San Francisco's metro area was $3,224 at the end of last year, according to economic research firm Moody's Analytics.

San Francisco's metro area is the ninth-highest rent-to-income area, with its residents forced to spend nearly 30% of their income on rent, according to Moody's.

The big picture: For the first time in over two decades, households nationwide now have to spend about 30% of their income on rent, according to the report.

In San Francisco, only tenants who live in buildings built before June 1979 are protected by local rent control laws. There are only a couple of exceptions to that rule. 

Meanwhile, last year's interest rate hikes contributed to some potential homebuyers choosing to keep renting.

Of note: Higher rents make it harder for aspiring homeowners to save money to put toward a down payment. 

What they're saying: Roisin Isner, director of activism and operations at the San Francisco Tenants Union, told Axios via email that the increase in asking rent "has been catastrophic, compounding the COVID economic crisis that's hit working people the hardest."

What we're watching: San Francisco is on track to meet today's deadline to submit a state-mandated plan to create a little more than 82,000 new housing units over the next eight years. It also mandates that nearly 46,600 of those units be for low- and moderate-income households.

Yes, but: District 5 Supervisor Dean Preston previously told Axios the city will not come close to hitting its goals if the state doesn't give San Francisco more funding. 

Preston also criticized the fact that the mayor's office hasn't spent the money city supervisors have already allocated toward affordable housing.

This story has been corrected to note that the data refers to the San Francisco metro area, not just San Francisco.

San Francisco area rents still steep amid high demand

Rising mortgage rates led to an increase in demand for rental apartments.

Housing

Chart showing change in average asking rent for apartments in select markets

The average asking rent in the San Francisco metro area was up 9.5% at the end of 2022 from the previous year as rising mortgage rates led to an increase in demand for rental apartments, according to a new report.Why it matters: The San Francisco area has a well-known housing crisis and high rents compound those challenges.

Real Estate

The San Francisco Bay Area housing market has yet to rebound, with home sale prices in the area continuing to dip.

Why it matters: Any relief from sky-high home prices is welcome, especially as mortgage rates creep up.

By the numbers: The median home sales price in the San Francisco metropolitan area was $1.3 million in January, down 9.36% from last year and down 3.11% from December, according to an analysis of Redfin data.

Homes sat on the market for a median of 55 days in January, up from 24 days last year.

Zoom out: Nationally, median home sales prices have barely budged from one year ago and activity fell for the 12th month in a row, according to the latest from the National Association of Realtors.

Sales are down 36.9% from the previous year.

As demand falls, homes sit on the market a little longer, which gives buyers a little more room to negotiate.

The national median home sales price in January was $359,000, up 1.3% from January 2022.

Zoom in: Every zip code in San Francisco proper has been affected by declining home values, according to the San Francisco Chronicle's recent analysis of Zillow data.

The hardest-hit area is 94118, which includes parts of Richmond, Presidio Terrace, Laurel Heights, and Presidio Heights.

What they're saying: This doesn't mean San Francisco will miraculously become more affordable, Zillow spokesperson Matt Kreamer told the Chronicle.

"Home prices have been falling, but mortgages are more expensive in spite of that," he said. "And because affordability challenges are what’s driving down prices, they can only fall so far before buyers jump back into the market and start bidding against each other again."

What's next: Spring — typically marked by high demand, more competition, and higher home prices — is right around the corner.

If this year follows typical trends, we should expect home prices to rise again in the near future.

Yes, but: Experts predict 2023 will see a far less frantic housing market than in 2022.

San Francisco Bay Area housing market still cooling

The median home sales price in the San Francisco metro was $1.3 million in January, down 9.36% from last year .

The San Francisco Bay Area housing market has yet to rebound, with home sale prices in the area continuing to dip.Why it matters: Any relief from sky-high home prices is welcome, especially as <a class="gtmContentClick" data-vars-link-text="mortgage rates creep up" data-vars-click-url="https://www.freddiemac.com/pmms" data-vars-item="in_content_link" href="https://www.freddiemac.com/pmms" target="_blank">mortgage rates creep up</a>.

A total of 4,700 mixed-use apartments have been completed in San Francisco since 2012, per a report from RentCafe, a nationwide apartment-search website.

Why it matters: Rental communities that include residential, office and retail space gained a foothold in the last decade, especially as the pandemic heightened renters' preference for having daily activities close at hand, the report found.

What they found: 22% of the units built in San Francisco between 2012 and 2021 were mixed-use, per RentCafe.

Zoom in: In the Castro neighborhood, a building housing a former real estate office is set to be demolished and replaced with a six-story mixed-use building, Hoodline reported last month.

The building will contain 14 market-rate condo units, retail space on the ground floor, roof access for tenants and underground parking for six vehicles.

Of note: A vacancy storefront tax went into effect in January to tax property owners in 32 districts throughout the city. 

Retail vacancies occur when "a property owner or landlord fails to actively market a vacant retail storefront to viable commercial tenants and/or to offer the property at a reasonable rate," per the legislation.

Zoom out: The number of apartments in "live-work-play" buildings nationwide has quadrupled over the last decade, from 10,000 completed in 2012 to 43,700 in 2021, according to Yardi Matrix data.

The bottom line: Blending different types of real estate is one way cities are evolving in the era of remote and hybrid work.

San Francisco is one of the top cities for live-work-play apartments

22% of the units built in San Francisco between 2012 and 2021 were mixed-use, per RentCafe.

Illustration of an office cubicle with a roof like a house.

A total of 4,700 mixed-use apartments have been completed in San Francisco since 2012, per a <a class="gtmContentClick" data-vars-link-text="report from RentCafe" data-vars-click-url="https://www.rentcafe.com/blog/rental-market/market-snapshots/live-work-play-developments/" data-vars-content-id="a77acdef-e6e1-4907-a925-1140186a7791" data-vars-headline="San Francisco is one of the top cities for live-work-play apartments" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.rentcafe.com/blog/rental-market/market-snapshots/live-work-play-developments/" target="_blank">report from RentCafe</a>, a nationwide apartment-search website.Why it matters: Rental communities that include residential, office and retail space gained a foothold in the last decade, especially as the pandemic heightened renters&#x27; preference for having daily activities close at hand, the report found.

News

Data: RentCafe analysis of Yardi Matrix data; Note: Analysis includes U.S. metro areas (defined by Yardi Matrix market boundaries) with the most apartments located in multi-family buildings of 50 units or more; Map: Kavya Beheraj/Axios

Apartments in and around San Francisco rank among the smallest in the country, despite being one of the most expensive places to rent.

Why it matters: Apartment sizes are shrinking nationally, despite a trend that saw rental units get bigger during the early part of the work-from-home era.

By the numbers: The average size of newer San Francisco Bay Area apartments is 741 square feet, about 16.5% smaller than the national average size of 887 square feet, according to a new report from listing service RentCafe.

Among 100 metro areas analyzed, the Bay Area was near the bottom of the list for spacious apartments, coming in at No. 94. 

The big picture: Nationwide, newly built apartments shed 30 square feet on average compared to 2021, per the report.

That sharp decrease was fueled in part by more studios and one-bedroom apartments entering the market, researchers found as they studied the metro areas with the most high-density buildings.

Flashback: In 2020 and 2021, demand for more space resulted in larger unit configurations, RentCafe analyst Adina Dragos tells Axios.

"Fast forward to 2022, the demand for more apartments prompted developers to accommodate more units in their projects," Dragos says.

Case in point: 57% of apartments completed last year were small units across the U.S.

Meanwhile, rent prices are still high in the Bay Area.

The average rent in San Francisco's metro area was $3,224 at the end of last year, according to economic research firm Moody's Analytics.

Between the lines: San Francisco Mayor London Breed on Tuesday proposed improvements to the building permitting process that is designed to reduce housing development timelines by months, or even years, according to a press release.

As part of the city's latest housing plan, San Francisco must create more than 82,000 new housing units over the next eight years. It also mandates that nearly 46,600 of those units be for low- and moderate-income households.

Breed's proposal would standardize site permit review processes and eliminate redundant stages, according to the press release. Her proposal, however, requires legislative approval that her office has yet to draft.

What we're watching: Apartments under construction.

As the market keeps fluctuating post-pandemic, their size could signal whether the trend of smaller rentals will stick.

San Francisco's newer apartments are some of the smallest in U.S.

Apartments in San Francisco area rank among smallest in the U.S., despite this being one of the most expensive places to rent.

Apartments in and around San Francisco rank among the smallest in the country, despite being one of the most expensive places to rent.Why it matters: <a class="gtmContentClick" data-vars-link-text="Apartment sizes" data-vars-click-url="https://www.axios.com/2023/03/14/smaller-apartments-flooding-market" data-vars-item="in_content_link" href="https://www.axios.com/2023/03/14/smaller-apartments-flooding-market" target="_self">Apartment sizes</a> are shrinking nationally, despite a trend that saw rental units <a class="gtmContentClick" data-vars-link-text="get bigger" data-vars-click-url="https://www.wsj.com/articles/supersize-apartments-are-back-in-demand-11624964401" data-vars-item="in_content_link" href="https://www.wsj.com/articles/supersize-apartments-are-back-in-demand-11624964401" target="_blank">get bigger</a> during the early part of the<a class="gtmContentClick" data-vars-link-text=" work-from-home" data-vars-click-url="https://www.axios.com/2022/09/15/census-bureau-work-from-home-pandemic-labor" data-vars-item="in_content_link" href="https://www.axios.com/2022/09/15/census-bureau-work-from-home-pandemic-labor" target="_self"> work-from-home</a> era.

Data: Point2Homes; Map: Tory Lysik/Axios Visuals

San Francisco renters on average earned 40% of the income they would need to afford a median-priced "starter home" in the city, per October figures from Point2Homes.

Researchers consider "starter homes" properties valued in the lower one-third of all available homes for sale.

Why it matters: Higher mortgage rates and housing costs are keeping homeownership out of reach for many hopeful first-time buyers in San Francisco.

By the numbers: The average household income among San Francisco renters in October was $100,715, but the income needed to cover a median mortgage was $251,190, according to the study.

In September, the median price for a "starter home" in San Francisco was $1,048,498, the study found by analyzing Zillow data.

Reality check: The median starter home in SF costs as much as the median starter homes in the top 10 most affordable cities … combined! 

Following October's interest rate hike, renters in 15 of the 50 largest U.S. cities made less than half the income needed to buy one of the entry-level homes in their respective town, per the analysis.

Between the lines: There's a housing crisis in San Francisco, and the city must meet state-mandated goals to build 82,000 housing units between 2023 and 2030 to meet demand.

Meanwhile, it takes a median 627 days to obtain a full building permit to construct a multi-unit housing project, a recent San Francisco Chronicle analysis found. It takes even longer, 861 days, to obtain permits to build single-family homes.

The big picture: Nationwide, the number of first-time home buyers has shrunk to a record low, according to the National Association of Realtors. First-time buyers made up 26% of all buyers in 2022, down from 34% last year, the group found.

Most San Francisco renters can't afford starter homes

Renters on average earned 40% of the income they would need to afford a median-priced "starter home" in SF.

Map of where renters do or don't meet income requirements

San Francisco renters on average earned 40% of the income they would need to afford a median-priced &quot;starter home&quot; in the city, <a class="gtmContentClick" data-vars-link-text="per October figures from Point2Homes" data-vars-click-url="https://www.point2homes.com/news/research/starter-homes-where-to-find-them-entry-level-house-myth.html" data-vars-item="in_content_link" href="https://www.point2homes.com/news/research/starter-homes-where-to-find-them-entry-level-house-myth.html" target="_blank">per October figures from Point2Homes</a>.<ul><li>Researchers consider &quot;starter homes&quot; properties valued in the lower one-third of all available homes for sale.</li></ul>

Sami Sparber

Featured stories

San Francisco's newer apartments are some of the smallest in U.S.

San Francisco Bay Area housing market still cooling

San Francisco area rents still steep amid high demand

Most San Francisco renters can't afford starter homes

San Francisco is one of the top cities for live-work-play apartments