San Francisco Rents Dip – After Tenants Get Laid Off

by Paul Hogarth on March 31, 2009

You can read about it everywhere. “Renters Rejoice,” proclaimed yesterday’s Examiner – as the paper reported that San Francisco rents have dropped by a whopping $200. Two months ago, the Chronicle reported: “the charging bull that long characterized the rental market is finally out of breath.” It’s true – rents have gone down, but it’s also true that unemployment has nearly doubled. When prospective tenants don’t have jobs, you don’t need an economist to tell you that landlords must lower the asking price. Two years ago, I reported that San Francisco rents had exploded – as the mortgage crisis drove would-be buyers into the rental market, shooting up the cost of finding a pad. Now, the trickle-down effect of cheaper home prices has meant lower rents. But for folks at the bottom of the economic ladder, it’s too little, too late. A landlord in Lower Pac Heights may offer free yoga classes to entice new renters, but he’s still charging $2,500 a month for the apartment. And if you still can’t afford that “market rent,” you’re simply out of luck.

When I tried finding an apartment to rent on Craig’s List in October 2007, some of the rents I found included $1445 for a studio in the Mission, $2500 for a one-bedroom in Cole Valley and $3685 for a two-bedroom in Noe Valley. So what’s it like today? Mission studios average at $1200, one-bedrooms in Cole Valley go for about $2000, and expect to pay more than $2600 for that two-bedroom place in Noe Valley.

Is that more affordable? Sure, but now renters as a whole are in a worse economic situation. The City’s unemployment rate has nearly doubled in the past year – from 4.3% to 8.3%. And when the City makes more layoffs due to budget cuts, it’s going to get even worse. It’s a bitter irony that when rents finally go down, the buying power of tenants has already declined. In fact, the very definition of “trickle-down economics” is that those at the bottom are the last to benefit.

For brand-new rentals exempt from rent control, it’s even worse. Rather than renting, I ended up buying my first home last year: a small studio in a newly built complex near City Hall. After moving in, I discovered a lot of my neighbors are tenants – who rent units like mine from investors. My next-door neighbor just moved out after her 12-month lease expired, and the landlord found a replacement – who’ll be paying $1400 a month. What’s going to happen to these tenants if they suddenly learn their employer has to let them go?

When developers of the Argenta – a newly built high-rise at Polk & Market – announced they were converting the project to a rental property, observers noted what this meant for the City’s declining condo market. I saw it as good news, because San Francisco needs more apartments available for rent. But what’s the asking price for these units? One-bedroom apartments are going for $2,250. How many San Franciscans who have trouble finding an apartment can afford that?

Every time there’s an economic downturn, rent control opponents point to declining rents as “proof” that the free market is “working.” They talk about how tenants can just re-negotiate their leases, or how landlords are offering incentives. Yesterday, a real estate blog featured an apartment in Lower Pac Heights – where you can get a 42-inch flat screen and free yoga classes if you move in right away and sign a lease.

Sounds good, until you hear that the two-bedroom in question gets rented for more than $2500. When you’re in a precarious employment decision and don’t know if you’ll still have a job in a year, who cares about getting a massive TV? How about bringing down the rent to a somewhat sane level – if the market truly works for everybody?

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