Residential apartment vacancy rates are soaring in San Francisco. The once hot apartment rental market that led to a surge in development and a boom in apartment building sales is now over.
As Bay Area tech workers continue to be furloughed and laid off and shelter-in-place orders require the majority to work from home for the foreseeable future– residents are leaving the expensive city for cheaper rent, more space, and in some cases, taking out a mortgage to own a home.
Pre-COVID-19, San Francisco was looking at ways to create more affordable housing for its growing population and failed. Now, as vacancies are skyrocketing, it’s failing again to find a way to lower rents and generate new momentum to keep people from leaving the city and enticing visitors to take up residence.
The main issue is rent control. Landlords are trying different ways to incentivize tenants by offering free rent for the first month or half off rent for the first two months, or “moving allowances,” but no rent reduction in the lease terms. The reason is because under current rent control laws, rental rates are established against the higher rent achieved. If landlords began lowering rental rates, then they would effectively destroy the value of their assets by permanently locking in a lower rental rate for the foreseeable future.
The City needs to recognize this problem and fix it by creating an emergency removal of the current rent control measures until the virus ends or we see a turnaround in vacancy rates.
If not, San Francisco will lose out on a tremendous opportunity to create lower costs of living for people looking to move in and will continue to see the exodus we’re experiencing.