Our core competency lies in resolving landlord-tenant disputes, but we also keep a close eye on the bigger picture and monitor where rents are headed.
We are avid followers of Jay Parsons, a renowned rental housing economist. Jay calls the fluctuation in San Francisco rents “weird.” After a long stay in the doldrums, San Francisco rents have spiked precipitously to the tune of 10% since 2024, the highest among large U.S. cities.
This rebound makes sense as AI companies sprout up, stricter return-to-office policies are implemented, and we finally have a crime-fighting mayor who has improved quality of life issues. There is also a renewed appetite for urban living.
While rents are on the uptick, they are still 7% below pre-pandemic highs in the city.
Still, housing providers should be encouraged about a rental resurgence that has spawned a bidding war. The market is especially hot in areas close to the epicenter of offices.
It seems, at any given point in time, San Francisco is the nation’s absolute hottest market or absolute coldest apartment market.
~ Jay Parsons
Volatile swings aren’t just a COVID-era phenomenon. Throw a dart on the map and most markets continue to see flat, if not falling, apartment rents because of a construction boom and a new wave of supply. San Francisco is unique because, despite the demand-side challenges, there have not been a lot of shovels in the ground - no construction boom here. This lack of supply has allowed vacancy to drop back down and drive rents back up.
The uptick in rents is likely to continue because, despite new leadership intent on eliminating red tape, it is still challenging to start new housing projects, particularly due to high interest rates.
We need to think strategically about rents
In a landlord market, rental property owners need to weigh their desire to get the most rent the market will bear, and attract the biggest pool of qualified tenants. Operative term, qualified.
The owner may lose rental income if the rent is overpriced and the unit sits idly on the market for an extended time.
Moreover, someone willing to pay an inflated amount of rent may be a bad tenant because they are unable to find another living arrangement due to a history of poor credit or failed rental relationships. A landlord overpricing their unit may be initially thrilled to find someone willing to pay top dollar to move in, only to be disappointed later on when the tenant is unable to pay rent or create other problems.
Of course, there is also a risk that pricing units too high may result in them languishing idly on the market for an extended period.
Finding the "sweet spot" in right-sizing the rent is one of the many topics we explored in an earlier webinar.
