Notoriously pricey San Francisco had the "highest rents in the world" for 2018 and 2019, according to analyses from rental site Zumper. For a period around 2015 and 2016, rents were increasing by as much as 10% every year. But in response to the coronavirus pandemic, the median rent for a one-bedroom apartment in the city is now actually 1% lower than it was at this time last year, according to the latest data from Apartment List.
That's despite the fact that normally, rents would be trending upward at this time of the year, as the market nears its summer peak.
By comparison, nationally, rents have stayed largely flat.
Most of that drop for San Francisco occurred quickly: Rent declined by 0.73% just between April and May. And experts say that what's happening in San Francisco is indicative of what could happen to rental markets nationwide.
Several high-profile tech firms have announced long-term plans to substantially loosen their remote policies. Google has extended work-from-home until at least the end of 2020, while Twitter and Square have announced that they plan to let employees work from home permanently if they want, even after the pandemic is over.
If employees are allowed to continue telecommuting, they could leave San Francisco's high rents behind for vastly less expensive cities. The recent rent price drop is an indication that some workers are already starting to do this as their leases expire and uncertainty remains about if and when they'll have to return to the office.
"My guess is what we're seeing is a mix of people who are either doubling with friends or family, or moving back to their parents' units or elsewhere, either in order to resolve a challenge in making their payments — a lot of people have lost their jobs — or to save," says Issi Romem, founder of consultancy firm MetroSight and a fellow at the Terner Center for Housing Innovation at UC Berkeley.
Video by David Fang
Even if most of the newly remote tech workers eventually come back to rent in San Francisco, the city's prices could still remain below pre-pandemic levels. "A majority of people in the Bay Area will go back to their office, but a significant minority won't, and that significant minority is enough to completely change the dynamics of San Francisco real estate," says Anthemos Georgiades, CEO of Zumper.
Even if just 10% or 20% of the Bay Area's tech workers never return, Georgiades predicts, that could keep the city's rents down. A recent CNBC/SurveyMonkey poll found that over a quarter of tech sector employees want to work from home permanently.
As the pandemic ebbs, rents could increase noticeably in the cities where telecommuters relocate, he predicts. Salt Lake City, Reno, Denver, and Austin are all on Georgiades' radar as places that could see noticeable rent increases in the next year. Apartment List's data shows that rents in Nashville and Phoenix have increased by over 2% in the last year.
An influx of highly-paid tech workers — many of whom are likely to be renters-by-choice with lots of disposable income — could drive up rents and displace longtime residents, especially if those workers arrive too quickly, warns Chris Salviati, a housing economist at Apartment List. A particularly extreme example of this is dynamic is Boise, Idaho, where the growth of the local tech sector has improved some quality of life indicators, but has also increased housing costs and traffic congestion. The problems are likely to get worse if the local population increases as quickly as the state government predicts.
"A large immediate influx of kind of highly paid workers in a market that previously wasn't attracting any attention from these folks ... could definitely create affordability concerns," says Salviati. "My sense would be that this is going to be probably a slower thing that will play out more gradually."
The arrival of highly paid workers could also spur economic development as smaller cities or towns try to cater to their needs. "If these folks are moving in from big cities where they're used to having access to all sorts of neighborhood amenities — like having the choice of five different cafes to go work from within a two block radius — and now you're moving to a much smaller town but you have a demand for these sorts of local amenities, then that maybe creates a kind of opportunity for various small businesses to pop up to support these workers," says Salviati.
Since tech workers aren't likely to move to just one place, Salviati expects that the impact on affordability will be spread out. Some cities will feel it more acutely than others.
Several areas are already looking to capitalize on the shift to telecommuting. Savannah, Georgia, is the latest city attempting to attract tech workers by offering relocation bonuses. The Savannah Economic Development Authority is offering to reimburse $2,000 in life expenses for 50 tech workers who relocate there before the end of 2020. There are similar programs in Oklahoma and Vermont.
While rents can indicate the start of a shift in the real estate market, it's a decline in sale prices that shows the trend is becoming more permanent. There's no evidence of that happening yet, says Romem.
In fact, sale prices have increased in San Francisco and in several of its surrounding counties over the last year, while the number of homes on the market has declined noticeably, according to data from Zillow.
"I do think that the rental market is much quicker to change and to react to these new situations than the for sale market," says Romem. He believes that even when the pandemic ends, and people return to cities, the sale market will likely take longer to revert to its pre-pandemic state than rent prices will.
"I think the ability of people to move back into these more core urban locations will happen much faster than any corresponding shift in people's decisions about about buying properties," he says.
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