San Francisco apartment rent prices are dropping fast
cnbc.com
cnbc.com
I live in Denver and just resigned my lease without much in the way of increased negotiation power. I run into two main issues here:
1). Extreme information asymmetry. While many of the properties are owned by different investors, many of those same properties are managed by a significantly smaller subset. Those property managers have a cartel like effect. For instance, they can strategically hold back supply to keep a rent floor and 'establish' extremely draconian lease terms under the guise of 'market forces.'
2). Draconian lease terms. This is a subset of the 1st point, but it's extremely difficult to price the market when you're required to give (move-out) notice well in advance of the actual lease date. Because the market here is so fast, you're basically jumping in blind-folded at what might be available when you go to look for a new lease. Great for landlords you can fill a spot in a moments notice, but horrible for a tenet who's trying to understand the cost of such a decision.
So cities like Denver and Austin are probably not seeing as much outmigration, but are also probably seeing some immigration from the VHCOL areas.
English pronunciation is a mess.
In the case of a lease, you can’t just skip town for a few months to save money.
Also, there have been some reports of record amounts of lease breaking. Considering that that behavior was probably close to non-existent before the pandemic, the 'record' amount is probably only a few % of leases at most. But it kinda makes sense. If you have access to free or cheap housing (i.e. staying with parents/family, etc...), and if that housing has a better 'pandemic quality of life' (i.e. more square footage, access to outdoors, etc...) than breaking your lease is somewhat rational. Worst case, they force you to pay the remainder of your lease. Best case, they re-rent it or let you get out without paying. Either way, your are improving your QOL, and you are not any worse off financially then you would have been if you stayed in the rental till the end of your lease.
Panicked landlords are the party with price-dropping power, because their choices are "follow the market" or "undercut the market to get first look".
A landlord might hold out for a few months, but if they are rational and their property isn't tenanted they'll sack the agent.
It’s all about supply and demand.
What do you mean here? Just that trying to avoid a month of double-rent means you lose negotiating power cause you have to pick something quickly enough to set up the move and be done in 30 days?
I would absolutely not give up my current market without having the next one lined up, but yes, this means if I'm moving purely to save money, I'm going to have some overlap. But usually I haven't had to have more than 2 weeks, thanks to non-immediate move-in dates.
If you're looking to price the rental market and you have a 60 day notice, you're probably look at rentals that start 60-90 days out. In a hot market this is an extremely small cohort. If you're required to give 30 days notice that range can extend from 30-90 days, capturing significantly more options.
The net effect here is that tenets lose leverage. In a 30< day model I can look significantly wider without wasting time. in a 30> day model I run the risk of exhausting my runway (and probably taking the first option available).
When I was younger and living paycheck to paycheck, I couldn’t afford the overlap and would have to give notice and then start looking closer to the actual date... very stressful! I’m sure a lot of people have to deal with this.
In many jurisdictions that term would be void or ineffective (I don't think it's technically illegal to have such a term in California, but the landlord has an affirmative duty to attempt to mitigate damages by trying to rerent the unit and there only claim of damages would be for the actual period and amount of lost rent, so anyplace that has a hot market, especially where they can rent both quickly at an an equal or higher rate to a new tenant, there's little meaningful cost to late notice lease breaking.)
Of course, that doesn’t mean the landlord won't demand more, but you can tell them to pound sand, with relevant citations, if they do, and they’ll almost certainly back off.
Our upstairs neighbours, who share a 3 bedroom apartment are also all out. One moved to Denver (job opportunity), the other two are finding a more affordable alternative outside the city. These are young professionals who enjoy a patio and drinks on a Friday.
Our landlord originally listed our unit back at $2,800/month but I see it's now at $2,500/month.
My anecdotal evidence of the shift :)
With a landlord demanding rent that high, how could you NOT move? :) Either way, this gives me a flicker of hope that maybe I can negotiate my rent down a bit this year.
Though, in the Midwest you could have a mortgage on a five bedroom house for that amount.
Then we'll see thousands of articles about how SF, Boston, and so forth can't pay for the public services the cities want to pay for, and how terrible it is that companies are leaving. Those stories will contrast with the ones we've seen over the last decade, about how companies are evil and driving up the cost of housing.
Edit to add, the other question is eviction. Right now SF appears to have banned eviction: https://sfist.com/2020/06/10/sf-supervisors-extend-eviction-.... If or when that ends, we'll see what the market clears at. I assume courts will eventually forbid an indefinite eviction moratorium, but courts are already willing to go along with rent control, so who knows?
Perhaps, but I've also gotten the impression those companies weren't paying that much to begin with. But perhaps it is they were paying a lot, but not nearly as much as they should have been if they weren't able to buy their own legislation?
Additionally, I don't get the impression that companies are able to buy legislation in SF. Otherwise, we wouldn't have policies like Gross Receipts tax, which most of tech companies in SF opposed [0].
In general, I think this obsession with "making corporations pay their fair share" isn't the right way of deciding a good tax policy. We should tax things we want to incentivize as little as possible, and tax things we want to discourage as much as possible. Maybe that leads to higher corporate taxes (I suspect it wouldn't), but the mindset should not revolve around trying to get a pound of flesh. Additionally, it isn't even guaranteed that the tax burden will fall on the corporation just because they're the ones writing the check. So even if our goal is "make corporations pay", tax incidence can just lead to us making labour and customers pay instead.
[0] - FWIW, I don't think gross receipts is not a very efficient tax, since it just encourages vertical integration and discourages multiple companies working together; ie. less competition. Unfortunately, Prop 13 prevents the economically efficient and fair source of revenue
They could just use VAT, which gives no advantage to vertical integration.
I think VAT/sales tax is bad in other ways, since it's a regressive tax (the poor spend more of their income/wealth on consumption vs. the rich), and it also reduces transactions being made, which just creates dead weight loss. Our goal should be to keep money moving around, not add barriers to new transactions.
If I had to pick, I think I'd prefer the gross receipts tax, but I haven't studied the underlying economics to come to a conclusion on which is better/worse.
Gross receipts tax is just sales tax that doesn't show up on the customer's receipt. They like to pretend that it's then the seller who pays it instead of the buyer, but that's not how it works. It gets paid by whoever can't pass it on. In a competitive market that's the consumer, because the seller already has thin margins and can't absorb the cost without going out of business. (In a monopolistic market it's the monopolist, but that's just as true of sales tax -- in a monopolistic market the customer can't absorb higher prices because they're already paying monopoly prices.)
> SF already has a fairly high sales tax (~9%), so I doubt they could raise it anymore (I'm considering sales tax and VAT to be the same for this discussion, since they lead to the same revenue for the government, and same cost for the consumer).
Denmark and Sweden have 25% VAT. The EU requires it to be at least 15%.
> it's a regressive tax (the poor spend more of their income/wealth on consumption vs. the rich)
People always use this argument to justify income tax over VAT even though everything about the income tax doesn't actually work like that. "Progressive income tax" but not for FICA, which is like half the income tax ordinary people pay, and hey let's disguise that fact by alleging that it's being paid half by the employer even though that's not how it works. Let's put a cap on that too, so the wealthiest pay proportionally less than regular people. And then we'll have a bunch of means-tested benefits so that even for the "progressive" income tax, in practice lower income people are paying the highest marginal rates due to the benefits phase outs. Meanwhile we'll have income tax on the "profit" of international corporations, but only on paper because they don't actually report their profits in your country.
It also doesn't work when comparing VAT to property tax, because the rich generally don't use a disproportionate amount of their wealth to buy real estate -- unless it's rental properties in which case the property tax ends up being passed on to the tenants.
If you want to make VAT progressive then use it to fund a UBI. All of these other games only give people with accountants more holes to hide in.
All taxes except the land tax cause some sort of dead weight loss, which just leads to lower spending and economic activity, which leads to more unemployment.
> because the rich generally don't use a disproportionate amount of their wealth to buy real estate
Most valuable land is owned by the wealthy, and most poor people rent, so I don't see how a land tax would fall on the poor more than the wealthy.
> the property tax ends up being passed on to the tenants.
A land tax cannot be passed onto a tenant, since the supply of land is fixed, and so taxing land doesn't changing the supply-demand curve (leaving the equilibrium price the same).
> All of these other games only give people with accountants more holes to hide in
Actually, land tax has the least loopholes. Capital, businesses, high income individuals etc. can simple move to a jurisdiction with lower taxes if they want to. But they can't take their land with them, so the tax will always be paid (either they keep it, and pay the tax, or sell it to someone else, who can then use it).
Land tax does the same thing. If you try to generate all tax revenue from land tax then land tax is really high. Land tax is set based on the value of the land, so land in the city center becomes even more expensive than it is already and you increase the incentive for sprawl by not allowing the owners of the best land to recoup its value themselves, which deters investment there. (Property tax does this too, and moreso, because it taxes the investment in buildings as well; but trying to get 100% of tax revenue from property tax would be problematic too. It's bad enough as it is.)
> Most valuable land is owned by the wealthy, and most poor people rent, so I don't see how a land tax would fall on the poor more than the wealthy.
Rents are always proportional to ownership costs. If it cost much less to rent than own then the existing owners would sell their properties to by non-real estate investments until property values fell to parity. If it cost much more to rent than own then investors would bid up property values or build more properties in order to get those returns, until that wasn't the case anymore.
If you increase the cost of property ownership, you increase rents, and vice versa.
> A land tax cannot be passed onto a tenant, since the supply of land is fixed, and so taxing land doesn't changing the supply-demand curve (leaving the equilibrium price the same).
Tenants don't buy land, they by housing units. You can build more housing units or not on the same land.
> the tax will always be paid (either they keep it, and pay the tax, or sell it to someone else, who can then use it).
This is the basic flaw in the land tax theory -- that somebody has to pay the tax.
A piece of undeveloped land in the city center starts off as very valuable, so it has a very high land tax. Anybody who wants to buy it had better be getting a very large return. It makes it more profitable to buy one plot of land and build a 100 story building on it than to buy ten plots and build 10 story buildings. So enough people do that and break even from that to saturate the local demand for real estate.
But then there are those other 9 plots which are now empty, or still have 5 story buildings on them, next to the 100 story buildings. There isn't enough local demand to justify any more 100 story buildings, but they're paying the same land tax as the 100 story building next to them because the land is of the same type and in the same approximate location, so they're completely bankrupt. The land is worthless because the tax is more than the returns you can get from it -- you can't build another 100 story building because the rental market is saturated and its existence would lower rents to below your cost, but nothing else brings in enough revenue to pay the land tax either.
So you abandon the property, or donate it to a non-profit which doesn't pay the tax, and the tax is thereby avoided.
So in the most desirable locations you end up with a handful of very tall buildings next to a larger number of abandoned lots. That is not efficient land allocation.
Meanwhile in the suburbs the land value is not very high because it isn't as scarce (compare how much land is in the city center to how much is in the suburbs around it), and affluent people like to live there anyway, so everybody with money is living there and paying low taxes. And even there you might get the same thing -- a few 20 story buildings that completely fill a plot of land where people live, surrounded by empty lots.
Mountains are the thing.
Austin has many of those, but without mass transit, and Phoenix has some, but it's less urban and the traffic is horrible.
Also, climate modelling says that it's going to get wetter which would make its land more arable.
So, good retirement investment.
An elevated line would be more feasible (and is indeed in place for some portions of the existing rail lines), but again, you still have to sink your supporting piles deep due to the soil, and that raises the costs. This is why the existing rail transit in the metro area largely follows rail corridors that existed beforehand.
Finally, botched project management has eroded public will to support more rail lines.
I want more transit rail too, but getting it is going to be an uphill battle.
It's really terrible there, don't move there!
Legal weed, friendly people, crazy nice weather, 30 degrees and people are out in tshirts and boots, outdoor stuff.
It's some kind of hippie Shangra La. We go there when we can for long weekends.
[1] National Bureau of Economic Research paper on Boston between 1640 and 2003 https://www.csus.edu/indiv/c/chalmersk/econ251fa12/glaeserbo...
People often say the stock market is disconnected from actually funding companies, but it seems like not in this area.
I believe biotech is the best area in the long run, but the fundamental cause of a bubble is that people start believing something is always a good buy at any price, and that always means the price has to go up enough to change minds.
The more you believe something is always good, the worse it has to become to change your mind, which is pretty scary to me.
>Then we'll see thousands of articles about how SF, Boston, and so forth can't pay for the public services the cities want to pay for, and how terrible it is that companies are leaving.
Good. Stupid should hurt. These cities had 20yr and nearly unbounded money they could have used to become somewhat sustainable. That they didn't is only their fault. And I say that as someone who lives in one of those cities.
I don't have town sewer but I have a septic system (tank and leach field) and that's pretty normal in more rural areas. I'm not sure I've ever heard of someone with a cesspool that needs to be pumped on a regular basis although I'm sure that exists. Septic tanks should get cleaned out now and then too but that's an every few years thing.
I do also pay for trash disposal and some things like that which are paid for by taxes in most cities but that's hardly a problem.
They figured they might as well save money and move back home with their parents until everything opens again. Then they'll probably go back.
I suspect things will pick up in SF as the bars and clubs and restaurants open again.
But then again, I suppose I'm biased by living in Boston, which... kinda hates fun and wants to make sure you go home early.
Miami closes at around 2AM (generally).
It's night and day.
It makes me miss the random industrial city in another country I lived in for my MSc. Admittedly, that's one of my favorite cities period, but it had night-owl bus lines, including BRT. You could go out at 20:30, stay out until 04:30, and get home at 5:45.
Why not just say Haifa?
I mean, come on. Are they shocked? Or is this how the townies want it? My impression is that quite a lot of the "natives" who think of themselves as "True Bostonians(TM)" (ie: not just those of us who've lived here for years, married someone raised here, and own property here) want this place to be the world's most populous (but rather restrictive) college town.
Why would they want more people around to ruin their city by walking around doing things? Come, spend your money like a tourist, fuel their businesses, get your degree if you're one of those workaholic nerds, and get the fuck back out. You can come back eventually if you manage to make the tenure track!
Massachusetts is overtly hostile to anyone who does not step in line the way a good well behaved cog in the machine should. Making it hard for people to stay out late and get drunk is just a specific instance of that.
When you picture the state as being run by a committee of stodgy puritanical authoritarians who live in Lincoln and Lexington it all makes sense.
Source: Native Miamian.
The Vegas strip is open 24h. NYC isn't.
Smoking, gambling and open liquor is about the extent of Vegas. It gets boring after a weekend there. Obviously if someone is dependent on any of the three it is the best place ever.
If you're like me who doesn't smoke, hate the smell, gambling is just $100 for entertainment value and drink beer while eating dinner it isn't the place to be at. This is generally what I hear fellow millennials once they visit.
There's clubbing, lots of high end dining, shows galore, Red Rocks for hiking and climbing, each casino on the strip is a spectacle, old Vegas, shooting ranges, etc. Most of those things costs a fair bit of money but are well worth doing.
I still love living in the city. Wouldn't move to the burbs if you paid me.
The remark was ironical.
When I worked in SF, one left the city when they had kids, and one bought a house, but they just enjoyed urban living, being able to walk places, have lots of services nearby, etc.
A few were part of a family where their kids were born there and were in school there, or the grandparents were nearby.
This was particularly eye opening: “For every 100 apartments in the city sold at market rates, the San Francisco school district expects to enroll only one additional student, the report said.”
https://www.nytimes.com/2017/01/21/us/san-francisco-children...
Reasons I moved:
- restaurants
- bars
- concerts
- larger dating pool
- greater LGBTQ acceptance
- close proximity to international airport
- can walk almost everywhere
- I find most american suburbs to be depressing
I am in my mid 30's and moved here about five years ago and I wish I had done it in my 20s. I hope you find a place you can enjoy!
I once met someone who was a lawyer who lived in Manhattan and worked in Princeton, NJ so his daily commute was Subway to Grand Central, Train out to NJ, bus to his work.
And look at all the people who live in SF and commute out to the South Bay for work.
Personally I'd never suffer that kind of commute and I live in Manhattan precisely to get my commute to walking distance but to each their own.
If 10% of the people don't come back, then prices may fall 40%.
It's a tough game things like this happen. My feeling is that we haven't even begun to see the beginning of this.
There will probably be some shift back, but I think after all this remote work will be a more permanent option for a lot of roles.
If you're able to get the same higher salary, but remotely somewhere with a more affordable cost of living, and aren't in that area specifically for in-person amenities, why wouldn't you?
During the pandemic, this agreement has been broken, which has created a feeling of being cheated out of an agreement (despite the caveats above). It’ll be interesting to see if people will be excited to return to normal once this is over, or if people will re-evaluate whether they’re getting a good deal.
My landlord tried to retroactively raise the rent on me during the COVID crisis, so I got pissed off and rage-browsed the rental web sites, and found a great deal I couldn't refuse:
I just moved from a 1 floor flat to a 4 floor house with 90% more space, backyard garden on a canal, an indoor garage (for bikes and storage since I don't have a car), near public transit, for 20% less rent!
They had to lower the rent 500 EUR a month to compete with all the AirBnB's that were suddenly dumped on the long term rental market.
My previous butt-hole landlord was shocked I was leaving on such short notice, and apologetic for the dick move that he tried to pull, and asked how he could convince me to stay, because he liked me as a tenant. I told him he'd have to at least give me the entire flat upstairs for free, to even get in the ballpark, and anyway it was a moot point because I'd already signed the contract.
Now I am much better prepared for the COVID crisis to last an indefinitely long time, and actually have enough room to get a chest freezer for the garage, for cooking and eating at home, and set up a big separate office instead using my bedroom, for working at home.
Seems like for all of the horrible damage being done by this disease, both physically and mentally, there are some silver linings, too.
I think the reason for the 2 months free is to avoid various rent controls. If they actually gave 20% off they couldn't put the price back up 20% in the future as easily.
That is 20% off.
https://leginfo.legislature.ca.gov/faces/billTextClient.xhtm...
> specifically excludes temporary discounts from the base rate calculation
I think you two (three, including "this commenter") are in agreement…
The second commenter (me) is saying that those discounts don't count towards the base rate.
SF does not include temporary discounts in their base rate calculation: https://sfrb.org/section-372-definitions
Note that SF-style rent control was outlawed statewide in 1995 by Costa-Hawkins. Only cities with existing program at that time can continue them.
For financed buildings it also keeps the nominal value of the building at the same level - it's still technically "rented" for the same rate, keeping future cash flow projected the same.
Meanwhile in the suburbs around cities the market is booming in certain segments. Lots of people who vowed they were always city dwellers are suddenly keen to live in the burbs. Hearing lots of stories of houses in desirable suburbs getting multiple competitive offers the first day they go on the market.
In the rental space in suburbs and vacation communities heard lots of stories of places being rented at above market prices sight unseen by people just looking to get out of the city for the summer/year.
Things will probably pick up in cities once things start to return to normal, but like a lot of things it’s likely going to be a very long time before things get back to where they were before all this started.
Apartments in the city center are desperate to sign leases. But houses are actually a little more expensive this year, and they sell within a few days of hitting the market.
And it make sense. New urbanism is dead at the moment: parks, cafes, and theaters are closed. There are no events. Nobody wants to take transit. But in single family neighborhoods, life is basically normal. Not to mention there is no traffic and gas is dirt cheap.
There are many reasons to not want to be in Seattle right now, but casting it as a warzone without "protection" (from the very aggressors themselves) is a bit much.
I can assure you that while it's bad, they generally don't bother people and simply need a system that actually helps them. More police won't solve anything here - I'm confident in this statement as they sit outside my window daily and do absolutely nothing as it is.
Call me callous, but I'd like to build drugs-allowed shelters so that they leave the streets.
I walk two dogs here a few times daily and while the litter has been worse post-COVID, it wasn't always this bad due to the city cleaners.
In general I agree with your shelters idea, Seattle does not do nearly enough to help these people.
Without knowing what part of Seattle you're specifically referring to I can't really explain more. If you're referring to Pioneer Square... well, I won't fight you on that one - that area needs help.
We stayed downtown for my wife who supposedly would be "back in the office" later this year (she doesn't drive), but I really wish I had gone with my gut and pushed for us to move further out. There is absolutely no benefit to being in Seattle proper right now, and it would not surprise me to see more people leave (I've considered just becoming rent-responsible on the lease and eating the cost, it's annoying me to death).
(If you're talking about anywhere near Cap Hill, nobody wants to sign a lease there after they tear gassed the entire neighborhood a few weeks ago)
My anecdotal data in NYC is identical, btw. I used to see a great apartment maybe once a week. Now, it’s closer to 5-8 per week. And they’re all “under” priced by 10-20%. I saw a rent-controlled parlor floor brownstone in Brooklyn heights recently. It’s unreal.
It’s just a bit sad to think how many of these households were lived in by actual victims of the coronavirus.
https://sfbay.craigslist.org/sfc/apa/d/san-francisco-green-j...
It is furnished so you can't claim rent control [not a lawyer - but they wont win]. But a true SF gem (the view is everything).
This is not the case with single family homes for rent - as far as I can tell. The single family homes and in-law units are vanishing as fast as they ever have in the desirable areas.
I just left a place where the landlord wasn't able to find anyone to replace me with two months notice and a 20% reduction.
Lots of places aren't reducing the monthly rate outright, but are giving 1-2 months free. So a $3100 rate would actually be $2841 or $2583. This benefits them because it affects property valuation. There's other factors involved too, but this seems like the primary one.
Wow, that’s allot of concentrated wealth. Anyone have some insight on these fine folk?
If each landlord owns 100 apartments renting for $4k each(average) that’s $400k a month gross. That’s allot of potential venture capital money to capture monthly, over $20M in five years.
It's not just free money. They're making money, sure, but considerably less than your calculation.
The incentive wasn't there for her to make a large capital expenditure on maintenance because the land appreciation was what she was banking on and rental demand was such that she could always rent the apartment.
While this example is extreme I've seen similar deferred maintenance behaviors repeated over and over again by the most successful (read: largest portfolio holding) landlords.
[0] - Except property taxes, but CA caps their increase, so if you've owned the property for a while now, the tax isn't in line with the rent you can charge.
The building at the corner of Fillmore and Waller was bought for $1.05 million, 20 years ago. It has 6 retail storefronts and 18 apartments upstairs. Just one of the retail doors rent for $10000/month, or it did before this rent strangled the tenant:
https://hoodline.com/2020/04/cafe-du-soleil-shutters-after-1...
The building is assessed for $1.4m, so the taxes are around $15000/year (which the tenants pay under NNN terms) but the gross is probably well over $50000/month. And there's no landscaping, obviously.
These people are absolutely stacking cash. They are just parasites.
In the case of a landowner, they need to put in no such work. They didn't create the land. All of the rent comes from the fact that they have a monopoly on a scarce good that cannot be produced further, and one that everyone needs. See Adam Smith [0] and David Ricardo analysis on rent for more on this (the Ricardo's law of rent is a really neat concept).
Now the fact that land and buildings are rented together complicates this a little bit, but this definitively applies to the rent that comes from the land.
Simply claiming two actions are equivalent because they both lead to lots of money is not a useful mental model. How you earn your money matters.
[0] - "The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give." — Wealth of Nations, Book I, Chapter XI
Not a fan of landlords as a rule but you are slicing your analyses of privilege way too thin.
Literally none of that matters in deciding who profits from land and who doesn't, and that's my entire point. The landowners in SF who didn't put this work in were still able to capture the rising value, and those in Detroit who did put all these effort in, didn't get anything to show for it.
Land doesn't rise in value because the landowner put in effort to raise the land value. The community and the government increased the value through building a city people wanted to move to (through building public transit, art scenes etc.). Why should the landowner capture that wealth?
Also, your tax point is moot, because California caps property taxes at essentially the level you bought the property at, so all the gains are free.
> the city you chose turns into a boomtown it’s good luck you have not earned
Yes, this is exactly my point.
Let me give you concrete scenario of where the current system breaks down. Let's say I own an apartment building on the edge of town, and the city decides to build a new transit line to the community. Rents in my apartment building will go up; let's say by $100. Renters are willing to pay an extra $100 because they value living near a transit line more than the being far from one. But why should that extra $100 go to my pockets, while the government has trouble even paying for transit system? It's not like I was the one who built transit system, it was funded by the income taxes of the people who work there, and then built by the government.
I guess my question to you is, why are we so attached to this system? As I pointed out, almost all economists agree that land rents "not at all proportioned to what the landlord may have laid out upon the improvement of the land". So why do we want to push forward a system where the reward is completely uncorrelated by the value you provide? Isn't that antithetical to capitalism?
Edit: To address your points about engineers, I'm not claiming that engineers do "real work" or "if you get rich in a liquidity event you earned it". I'm simply stating the reality of the fact that engineers actually produce something (code), while landlords don't (what could they even produce, more land???). If my landlord didn't buy the land I live 20 years ago, it would still be there, no worse for wear.
Let's have some perspective - that's why there are property taxes. Now, maybe the property taxes are too low, but the fundamental issue is recognized by society and the mechanism exists to balance things.
I don't get the impression that the issue is completely recognized by society though. We see articles all the time in the news about how the real estate market is going up. Clearly, most landowners currently have an expectation that they should get some return on their land ownership.
That's why so many advocate for restrictions on building in their communities.
I'm not saying it can't be a local, situational problem, I'm saying it's not a universal fundamental wrongness in the way society is structured.
It's like, a certain number of heart attacks happen each year. We may see a trend in heart disease over time. There could be some environmental reason for it. But extrapolating the current trend indefinitely and drawing the conclusion that there is something fundamentally wrong about the human heart's workings that requires a new mechanism is probably excessive.
The supply of land is fixed, but the population (demand) increases, so the land owners have an structural advantage in that sense.
I mean, most of us are just typing and talking. It’s not exactly laying bricks.
I mean, if I loan someone a million at 6%, I'm doing no work and collecting $60k a year!
Oh yeah, it's called risk. Similar to a landlord, the returns are in no way guaranteed.
Let me introduce you to some landlords who went bankrupt in 2008.
Land is a scarce resource with a fixed supply. If I want to rent land in SF, I don't too many options. And the demand is increasing, since everyone needs land to exist, and the population (at least in cities) is increasing. This gives the landlords a monopoly (see the law of rent: https://en.wikipedia.org/wiki/Law_of_rent). In the case of loans, if I don't like your rate, I can simply go to a different lender.
Secondly, can you point out what we lose if the landlords doesn't exist?
If lending doesn't exist, there's businesses that would have started, but can not anymore, since they may not have enough capital to get off the ground.
If landlords don't exists, the land is still there, and we lost nothing, since land can't be created or destroyed.
> Let me introduce you to some landlords who went bankrupt in 2008.
My point is not that being a landlord has no risk. Rather, I'm saying that the returns from land do not come at all from the value that the landlord provides, which is not the case for lending, or other productive activities.
If landlords don't exist, people couldn't have a place to live unless they could purchase themselves. I think landlords are great - I can get a nice place to live and have none of the risk the landlord does. Property prices go down? I don't care. House burns down? I don't care. If I want to pick up and leave in a year? Great, here's notice. No real estate fees, paperwork, etc.
I think landlords offer a fantastic service.
> House burns down? I don't care.
You're conflating land rents and building rents. The "landlord", in their position as the building owner clearly provides a valuable service: the upfront capital/labour to construct the building and the maintenance. I'm not saying this shouldn't exists; it definitely should. They should capture all the profits that come from the rent you pay because of the building. My point is simply that they shouldn't be able to profit from the landownership itself.
> people couldn't have a place to live unless they could purchase themselves. > Property prices go down? I don't care.
The only reason land has a purchase cost in the first place is because you can extract a rent from it indefinitely. If land did not allow you to extract a rent from it in perpetuity [0], the purchase price would go to zero.
[0] - we can achieve this through a land value tax equal to the rent you could extract from the land.
I'm not proposing we do away with rent as a concept. In the current situation, when you pay rent, you're really paying two rents combined.
The first rent corresponds to renting the land the building is on. This rent is why an equivalent apartment has a higher rent in SF than it does in Detroit or Houston.
The second rent corresponds to renting the building/unit itself. This rent is why a 2 bedroom apartment has a higher rent than a 1 bedroom apartment.
Now, the first rent is entirely uncorrelated with the value the landlord provides. It is essentially paid due to the landlord owning a monopoly on scarce good, which is only valuable due the community and government putting the effort to make the area valuable. Someone who owns land in downtown NYC didn't make it valuable, it became valuable because the government built the infrastructure to make the city livable, and the other residents made the city into a place where people want to live. Therefore, it's only fair that this rent goes to the commons rather than the landowner, where it can then be used to fund the government, rather than through other taxes.
What I propose is a land value tax equal to this land rent, so it is returned to the commons. The owner is still free to keep the rent from the building. This ideology is https://en.wikipedia.org/wiki/Georgism, and is pretty well supported from both an economic and fairness perspective.
And any one issuing any money to build anything won't be doing it unless it is profitable.
What you are against is basically profit. Unfortunately there is no way to arrive here(even with taxes) unless you can arrive at 0 inflation.
This tax would obviously be higher in desirable areas, so there would still be a price mechanism to ensure that the land is allocated effectively. If I bought a parcel of land in North Beach, but then didn't use it productively, I probably wouldn't be able to pay the tax and I would have to get rid of it. Additionally, since the market value of land reflects its most productive use, it would incentivize using the land in the efficient use (ie. densely in a high value area, since that lets you split the tax over more people).
You now need a $1.4 million loan to live in an apartment.
I don't understand. If you buy a hamburger, you didn't create the hamburger. What does that have to do with whether you earned the money to buy it?
If we go by your logic, we must also ban reading books, exercise, good relationships etc.
Pretty much any investment including things like education work very similar to land investments. There are only fixed college seats, is it fair to everyone?
Firstly start with understanding you can't give any thing to any one they don't want to earn. At the same time you can't stop people from going after these things and earning them.
Don’t get me wrong, real estate is a great investment, just not quite that great.
They are providing a service. You arrive in a new city with no money. Where will you live? The landlord is assuming the risk of owning and maintaining the building and all you have to do it put in a deposit.
The main reason they are "parasites" is prop 13. Without that, their building would be assessed at a reasonable level, and most of their profits would be property tax payments.
If you live in California, make sure to vote yes on the two partial repeals of Prop 13 this November:
https://ballotpedia.org/California_Property_Tax_Transfers_an...
https://ballotpedia.org/California_Property_Tax_Transfers,_E...
What service are they providing in their role as a landowner? Land (in the sense of it being in a specific location) doesn't require any maintenance or risk. It's also not like they created the land.
The majority of rent in SF comes from the land value, so this is the more relevant part to consider.
If you couldn't draw a rent from just owning land, the purchase price would go to essentially zero.
We tried that before, it was called feudalism. It's where the King owned all the land and the peasants were allowed a small piece of land to work and enjoy the fruits of their labor.
That system didn't work very well.
https://en.wikipedia.org/wiki/Land_value_tax
https://en.wikipedia.org/wiki/Georgism
People own the land, they just pay a "user fee" of sorts to the commons.
Actually, the current situation is already like feudalism. Under feudalism, people other than the king also held land (the nobility). These landed gentry also drew the benefits of free rent, from the poor labourers.
Those with land currently can hold it indefinitely, extract a profit from it, and then pass it onto their children. That sounds a lot like the landed gentry under feudalism to me. The property tax tempers it slightly (which is why prop 13 is so bad), but it's easy to eliminate it all, while still keeping private landownership and market mechanisms for allocation (I definitely don't trust the government to own and allocate all land efficiently).
But it sounds like it introduced a lot of problems too.
Another example I wrote in different comment:
> Let me give you concrete scenario of where the current system breaks down. Let's say I own an apartment building on the edge of town, and the city decides to build a new transit line to the community. Rents in my apartment building will go up; let's say by $100. Renters are willing to pay an extra $100 because they value living near a transit line more than the being far from one. But why should that extra $100 go to my pockets, while the government has trouble even paying for transit system? It's not like I was the one who built transit system, it was funded by the income taxes of the people who work there, and then built by the government.
This applies to all infrastructure spending of course.
In practice the percentage could be off, but the basic way the system works makes sense to me and I don't get the people who are sure that it's terribly wrong (whether because they are against taxes or against owning property).
Most infrastructure spending requires income taxes and transfers from the federal government, so clearly there is wealth transfer happening to the landlords.
You can dismiss it as anecdotal evidence, but I live very far away from SF, in a place built in the early 90s, within city limits, and it has not increased in value faster than inflation in all these years.
I don't doubt there are places where rent-seeking from land is not occurring. But we still need to address the places where it is a problem. And this will remain a problem as long as people require land to live, as long as centralization to cities keeps occurring (which we want more off, given its benefits).
My point is not that being a landlord has no risk or guarantees absurd returns. Rather, I'm saying that the returns from land do not come at all from the value that the landlord provides, so we should make sure those returns go back to the community that created them.
I'm sure there are other good models too.
The problem they recognized was if they had indefinite landownership, and they could pass it onto their descendants, given that they're a small island nation, within a few years, all the land would be owned.
After that, future generations would have no more land to buy, and those who are lucky enough to be born to landed family would be able to charge rent those who didn't have the privilege to be born to a family with property.
I think the government also wants to allow property owners to be able to profit somewhat from the growth of the value of their property, since 80% of the population owns property in Singapore.
Now, I agree that these 2 goals are in conflict, and tax policy would be the better fix. But I guess their approach does at least fix the problem somewhat.
Singapore has government substantiated condos that are quite good. You have to be a citizen to get the benefits, but if you can benefit from it, someone working min wage can buy a decent place to live.
See https://en.wikipedia.org/wiki/Land_value_tax and https://en.wikipedia.org/wiki/Georgism
[0] - But let them keep all the rent from the building, since they built it with their own capital and labour.
And that $1.05M invested 20 yeas ago in the stock market? They would have doubled their money with none of the headache.
Heck, the crappy apartment complex I lived in in the peninsula that was built in the 1960s was worth close to $9m and it only had like 8 small apartments.
Assuming all the units are under rent control, it might not be worth much more than $2M.
A good example is my place in SF. 3 unit building in a very desirable neighborhood. If the place was empty? It would likely fetch $5M based on square footage.
With 3 tenants who have been there 10 years and have rent control? My realtor tells me they base it on cap rate and with only $7000 in rent being collected, the landlord would be lucky to $1.5M for it.
In other words, even if you own 10 rentals, you are probably wealthy, but the bank my still own a majority % of those assets.
If you're highly levered (as a smaller landlord), and funneling that income into retirement accounts protected from creditors (varies by state for IRAs, 401ks are federally protected), it's all upside with no downside. Heads, you walk away with appreciated real estate you eventually cash out of. Tails, you walk away from your investment properties while your retirement assets are protected with credit blemishes that are quickly forgotten by lenders. It is rare to be pursued by lenders in recourse states, as being (mostly) judgement proof and the option of bankruptcy are significant hurdles.
By "stripping equity" do you mean taking out home equity loans whenever possible? Or are there other efficient ways to strip equity?
Once you have enough properties to bump up against Fannie or Freddie GSE underwriting guideline limits (~10 properties), you transition into commercial lending, where you build a relationship with a bank and they lend against your combined portfolio.
EDIT: You can find more information regarding these strategies at https://www.biggerpockets.com/
But when he got out only eight years later, his family "loaned" him a bunch of money to start up Everest properties.
But yes, in reality, he is probably still in control of both.
Part of the fascination for me is that the Reddy headquarters is this absurdly tacky mansion[1] in Kings County, in the middle of nowhere, surrounded (at arm's length) by abject poverty. Supposedly a branch of the family is the most successful vascular surgeon in Hanford (this makes ~zero economic sense) but the giveaway is that according to public records all of the Raj tax bills are mailed here. So it's really the seat of their weird real estate empire.
1: https://www.google.com/maps/place/1751+Muscat+Pl,+Hanford,+C...
At the same time, I think these changes will be healthy for those who do move out. Some are moving back in with families, and the cultural continuity of multi-generational homes is an important part of human society historically. I also hope it encourages people to discover cheaper towns in the country that have been ignored and left out of the last couple decades' economic gains. Many of those places have a lot to offer, and I bet those who give them a try will be surprised how much they like it. The economies of those areas will also benefit from the boost.
I’ve been living in the same apartment for 3 years with no rent changes and feel like it’s time for a drop
The most important thing for me in this process was doing the research on comparable properties in the city and spreadsheeting it out (sqft, rent, location, and amenities). I presented that spreadsheet, showing there were obviously places I could move to that were much cheaper with similar to better benefits.
Ultimately all negotiation is about showing that you're willing to walk away for a better alternative, and it's pretty clear there were good alternatives given the current SF housing market.
Suburbs (around here at least) are a lot more millennial-friendly than people give them credit for. I think as millennials age and get over the "must be in walking distance of a social scene" mindset, this trend will accelerate. I also think the inner-city riots/looting/etc will stimulate this across the US.
* https://www.zillow.com/homedetails/25-Brighton-St-Providence...
* https://www.zillow.com/homedetails/5-Alton-St-Providence-RI-...
The first one of those is in a very trendy gentrifying neighborhood. The second is in an adjacent working-class neighborhood. In both cases the asking price has shot way up from a year ago and has totally disconnected from the prevailing trends of just a couple months ago.
Supply is very low. Rates are very low. And the result is that the market is very hot. Every house we look at has multiple offers the next day, usually above asking.
1. If companies will extend their remote-friendly policies beyond the pandemic.
2. If the rising swell of unemployed Americans will pursue a career in tech, and enough of them are willing to relocate to San Francisco (as the trope goes).
I don't have a good prediction for the first point (some companies will likely dig their heels in on remote work because "we tried it" even though "remote work" is way different than "working during a pandemic"), but we'll at least see some of the second.
2. Those who were made unemployed were not the same people renting expensive SF apartments.
I really don't think the a significant portion of burger flippers have suddenly decided that a CS degree or pay for an expensive technical bootcamp is what they want to do. As far as I can see, the people losing their jobs are not in the educated class. A lot of them didn't go to college, did go to poorly rated schools, and are underachievers.
Imagine a couple of lawyers working for a firm in Houston making $$$$ who can now keep that same job but live in San Diego and not deal with the same weather... especially, say, if their kids just moved away anyway.
You could conceivably have desirable locations being a new sort of "bedroom community" that only the super-highly-paid can afford, regardless of where their employer is based.
Additionally, if a lawyer moves to a new state, he might have to take the bar exam again in order to be licensed in that jurisdiction. This applies even if the type of law that the lawyer practices hasn’t changed.
This seems a bit crazy, but I actually experienced this as a California lawyer (practicing federal corporate tax) who started spending time in another state where my girlfriend lived. Fortunately she got a job in CA before I had to take the bar in her state.
It ended up being a very smart move for my partner and I to skip town when we did, but we both miss the city every day.
Five whole years?!?
Honestly, CNBC couldn’t find someone with more experience than this??
Walking around the city you see a lot of commercial real estate signs and for lease signs. Tons of companies and individuals are leaving for good.
If the trend of WFH (forever) continues the rent prices in SF won’t go back up for a long time.
A gradual influx of people is good, as over time it leads to more of a local talent pool, people starting companies, and that sort of thing.
But a rapid influx might be the last straw for a lot of people who are not working remotely in highly paid jobs. Nurses, firefighters, teachers, police, and so on.
In the past, I think our prices moved more or less in sync with other west coast markets, broadly, but if there's a real exodus from cities, that might not hold true this cycle.
We been here for 10 months now, and signed for another year at our currently place with no rent increase. I didn't negotiate (our landlord offered us the same rent), but we have the best working relationship with him that I've ever had with a landlord and that's worth it to me. Also he's open to us modifying the property, which is worth something as well — he paid for ceiling fans to be installed and let me build a big garden in the backyard, for example. The place isn't perfect, but for now and especially during SIP, it's great. I expect if and when we move, we will continue to live in Berkeley.
That said, there are distinctive rental markets in SF. The massive 100 unit buildings without rent control are an entirely separate market from say a duplex in the Sunset.
We haven't signed the new lease and are potentially rethinking of signing since cases are starting to spike again and surrounding areas are looking really attractive for similar accommodations at ~$2,500 monthly rent.
We're hoping to buy a house within the next year.
Many facebook groups are advertising significant rental decreases particularly for roomate-situations. They're calling it a "COVID discount" but I suspect its going to stick around for awhile.
It’s what my kid pays to roommate with other students in Menlo Park.
In all seriousness, while I welcome the new openness to remote work, what I'd love to see is a push towards something in the middle: distributed offices.
Rather than having to choose between moving to ridiculously expensive SF, or working from home in their current city, employees could go to their local coworking space.
They'd get the benefits of an environment more conducive to productivity, away from the distractions of home, and the mental health benefits of social interaction. I don't think that making a huge shift to working from home is good for the already prevalent issue of loneliness.
Plus, having coworking spaces spread out within the city itself means that even if your company is headquartered in your city, you don't have to make the long commute to HQ if there's a closer coworking space.
Mainstream remote work has felt 5 years away for 20 years. We kind of stopped pondering the side effects. Circa 2000 there was a lot of interesting speculation though. Housing markets. Transport markets. If a 45 minute d2d commute represents 10% of a workday, remote working increases productivity by this much. Labour market flexibility and liquidity, for what that's worth. Reversing regional brain drains.
Hopefully this is because of remote work relocations, not just insolvency.
On a side note, this recessing is freaking me out.
But, at the same time, will there be more urban sprawl? More alcoholism since its easier to drink at home? More loneliness or feeling less connected to your coworkers?
It'll be interesting to see how things play out. Maybe there's only a small temporary change and things go back to the way they were once this is all forgotten.
San Francisco SFR is still a hot market, especially with a back yard.
I'm selling my condo with exclusive yard access once I can find a place to live in Contra Costa.
So, assuming rent was approximately constant in the year up to April, it first fell 9% now in May, and then another 3% in June? Wouldn't that be a better way of putting the numbers?
However, that also means that if there is a one-off drop of, say, 10%, then newspapers could report a "10% drop YOY" in 12 successive months.
Yesterday, the exact same apartment after complete reconstruction was offered for $2500/month plus two free months. That's pretty incredible.
Let's look at other places. Non-tech places which still have good jobs in, say, energy and medicine, in a place like, say, Houston:
https://www.har.com/content/mls/?m=06&y=20
Average prices in May are down 7% to San francisco's 9%. It would seem the impact is very similar in very different cities.
This doesn't help us per se because the ability to telecommute may be as valuable in Houston as it is in San Francisco.
However, if you believe the kinds of industries in Houston -- medicine and energy -- are less able to be made remote (and I don't have evidence for this), we might suspect that most of the collapse in pricing is driven by job layoffs.
The rent prices were way too damn high for a long time (which is the #1 reason I refuse to live in a big tech city).
Noted in TFA's 2nd paragraph.
40% off the market rent. Oh, and because he didn't actually live there, he left everything. Dishes, pots, a bed.
I'll put my other comment here as despite putting anything contentious, the mod here immediately locks my comments on housing related issues:
Correct. So rents fall yet we were told on hacker news over and over that zoning was the problem. That doesn't help, but airbnb was a huge, huge problem.
I'm certain covid has decimated airbnb income for many, and it must be part of what's driving down rent prices as these units come back on the long-term rental market.
AirBnB properties have been performing terribly during the pandemic and many of those properties are no longer viable as short-term rentals and are now flooding the traditional rental market at discounted prices or the owners are scrambling to sell them before they default on their loans.
If true, then this may suggest there is very good reason to have regulations on short terms rentals, like AirBnB, which have increased rent around the country to the detriment of affordable housing.
I think Hacker News always cites that as the main problem, right?
But now demand is down. Lower demand will probably be temporary until things open up again. May people live in SF for the cultural aspects (bars, clubs, theaters, restaurants). Once those open people will want to live there again.
When I graduated from grad school in the late 80s, basically none of my cohort lived in Boston/Cambridge--including those whose jobs were in the city. (Pretty much all of the tech industry jobs were in the suburbs/exurbs "Route 128")
So, yeah, if there's a mass exodus, even if somewhat transitory, the restaurants and bars and shops will tend to be gone and it won't be easy to refresh. And the people who moved out will be somewhat older and won't be inclined to return and the younger generation won't really get the appeal.
Instead, people are just moving to lower cost-of-living cities and working from there, so there's less demand for apartments and landlords have to lower prices to compensate.
With even the most hardcore "you must work IN the office" companies switching to remote for at least another 6 months, and many probably staying that way, I don't see how more people aren't flocking out of SF. 3x the rent and a downtown slowly becoming https://en.wikipedia.org/wiki/Hamsterdam there doesn't seem much keeping people there. The old argument of, "but that's where the jobs are" really isn't the case anymore.