> The figures underscore how the pandemic has roiled property markets and changed renter preferences. With companies allowing employees to work from home, people have fled cramped and costly urban areas in droves, seeking extra room in the suburbs or cheaper cities.
I am skeptical. Yes a lot of Bay Area companies are allowing work from home for now, but are people really weighing that so heavily that they’re moving? If we’re blaming the pandemic, maybe it’s that fewer people want to move to the city because they can’t enjoy it (bars, restaurants, etc)
"I am skeptical. Yes a lot of Bay Area companies are allowing work from home for now, but are people really weighing that so heavily that they’re moving?"
It is the marginal buyer, not the entire population, that swings the price. It's the last few properties for sale that swing the price.
Someone downthread explained it very nicely:
"Rent is like a traffic jam. The market collapses on the margin. You don't need to remove 30% of the cars to reduce freeway congestion by 30%, and you don't need to remove 30% of the residents to lower asking rents by 30%, either."
Elasticity features depend on the specific housing market but in the basic mental model housing supply can contract in the medium term when demand contracts and vice versa.
Demand is also elastic at least in the sense that people get bigger houses / move on to their own earlier / get roommates depending on the situation.
And geographically people spread out further if prices get high or move in from neighbouring locales which can be seen as demand elasticity if looked at from pov of a local housing market.
Housing supply is 100% inelastic in the 6 month time frame. In the medium run it's pretty inelastic in the bay because of NIMBY backed zoning laws not allowing for densification.
BTW the price elasticity of supply equation is always discussed as how the price affects supply. Anyone know how economists think about changes in supply affecting the price, is the same equation used? Eg destruction or creation of housing units.
This is what leases are for, they fix prices for a year or so by adding cost friction to moving (usually a few months of rent). Which, in theory, act as a buffer to stabilize prices.
The problem is that the cost savings of moving is so great that it was cheaper to pay to break the lease than it would be to stay. We saw the reverse of this before: when landlords were paying people $8,000 to move early because rent inflation meant they could charge much more than that to the next tenant.
SF is an outlier because of the income disparity, relatively low housing density, and unique climate & economic opportunity available there.
> cost savings of moving is so great that it was cheaper to pay to break the lease than it would be to stay
What's the law on this? I've read that the landlord is required to make a good faith effort to replace you, but if they can't (or if they can't recoup the costs), you are on the hook.
So if the cost is 32% lower and the landlord can only find a tenant willing to pay that much, it seems like you are responsible for the 32% for the remaining months of the lease - which is no better than if you just hadn't moved. And that's not even including the fact that the place might be on the market for months.
All of my leases had buy-out provisions, usually one or two months of rent. I've never lived in SF, but I'm going to guess that tenant-friendly laws in California combined with historically good price growth provided landlords with an incentive to make it easy for tenants to break leases.
I know more than a few people from SF who were paid to break their leases. More churn means more "market adjustments" for rent prices, and market adjustment historically favored landlords.
You're confusing a few things. Because SF (until recently) has disproportionately been a sellers market, leases are written such that they benefit the landlord.
Buyout clauses are not symmetric and are uncommon in SF.
In the context you described, both the tenant and the landlord have incentives: the landlord wants to pay you to break the lease so they can charge higher prices, the tenant might want to accept the money. The landlord doesn't have to have any clause in the lease whatsoever to make this offer because you aren't obligated to accept it.
On the other hand, in the current market the landlord has no incentive to accept an offer that is less than what they feel like they will lose by you leaving. Since the market has collapsed, they'll lose quite a bit.
I don't see the math adding up to making money by breaking out of the lease in SF - unless the prices fall considerably more.
> You're confusing a few things. Because SF (until recently) has disproportionately been a sellers market, leases are written such that they benefit the landlord.
Right, which is why it makes sense that landlords would allow tenants to break leases for a fee. The landlord gets two/three months of rent from the current tenant, plus they have a waiting list of people and will have the unit moved into within a few days paying higher rent.
So the benefits to the landlord is more money. They get to legally double-charge for rent and raise rent prices on an accelerated schedule at the cost of one or two days of lost occupancy.
The only time this doesn't benefit the landlords is when rent prices collapse. But considering SF rent prices have been inflating at a double digit annual clip for a decade or more now, I doubt any landlord considered a drop in rent prices to be possible.
Here's the difference: the landlord can already choose release you from your lease if you pay a fee, there doesn't have to be a clause about that.
Adding a clause to the lease forces the landlord to let you leave if you pay the money, which in situations like this can hurt the landlord quite a bit.
So there's really no upside and only a downside. The only time you'd need to include a clause like that is to make the lease more attractive, which in SF until recently has not been necessary.
Your understanding is correct, at least in general. If the tenant moves out and stops paying rent, the landlord has a claim for breach of contract. The landlord, however, must try to mitigate his damages by renting the property to someone else. The breaching tenant will be liable for vacancy costs as well as costs of finding a new tenant. If fair market value has gone down and the landlord can’t find a new tenant at the old rate, then the breaching tenant will be liable for the difference in the remainder of the lease term.
There may be statutory exceptions that allow a tenant to break a lease without liability in some circumstances. They’re things like military service, domestic violence, unsafe property, or landlord harassment. See this article for more info for California: https://www.nolo.com/legal-encyclopedia/tenants-right-break-...
there are ways to break a lease without penalty; I'd guess the qualifying circumstances vary state to state. also, some leases have explicit buyout clauses. I can get out of my current lease free and clear at any time by giving sixty days notice and paying an additional ~$2000 (a bit more than one month's rent). so if rents collapsed soon after renewing my lease, I could break even pretty easily by moving out.
Possibly leases did stabilise this. Not everyone was in a position to cheaply give up their lease so if x% of people (on net) would want to leave the city modulo lease obligations, maybe something like x/12% of people would actually leave in a given month.
how would this work? the only way I can think of is for the government to buy above market when prices are going down and then unload them when prices go up. it's hard to see how the public would actually benefit from this. it's a little insane to use government funds to take perfectly good housing stock off the market and prevent people from living in it. seems like the cure would be worse than the disease.
imo, it's best for cities not to try to influence the price of housing in the first place. but if you really want to bring down prices in a tight market, the best solution is to make it easier to build new (and especially denser) stuff. many cities could achieve this "simply" by relaxing zoning restrictions, but if necessary, they could go so far as to subsidize high-density developments. in the much more rare case that prices are collapsing, a city could be more aggressive in condemning dangerous structures.
And yet this is exactly what is done for farming: Paying farmers to leave fields fallow in order to maintain supply and thereby pricing.
Dropping property prices shouldn't even be an issue for owners. Property value and thereby property taxes should also go down. As long as they can cover that, then they can continue to own the property. Except in reality everyone is actually leveraged against their property and don't own outright. In which case, sounds like their leveraged risk failed and losing the property is supposed to be the outcome of that. And the new buyer can get it at a cheaper and more maintainable price.
I want to be clear that I'm discussing business owners of commercial property -- including residential rentals. Obviously the above is less desirable when we're talking about real people becoming homeless. But no one is going homeless if a business loses a leveraged property to another buyer.
I propose a moratorium on all analogies using, and discussions on, agricultural practices on any media based in the Bay Area or NYC. Not beating up on these posters. But geez, people...
Our generation is unique in the history of the world in the social and cultural chasm between the vast majority of first-world people and the agricultural systems that generate their food. Practically everything written off-the-top on agricultural sciences and practices by this generation by the average smart person on these sites, although it sounds simple and logical, is somewhere between naive and wrong. A hundred years ago this wasn’t true. It is now.
As analogies, it is not worth the off-topic thread to clarify things.
On actual practices, farmers have better things to do than correct posters on these sites. It’s harvest season for most of them, they have enough problems. Although bean prices are up, so many are smiling...
> And yet this is exactly what is done for farming: Paying farmers to leave fields fallow in order to maintain supply and thereby pricing.
I'm sure there are some subtleties I'm missing, but this has always struck me as a little odd. why do we subsidize agricultural production and then turn around and also pay farmers not to use fields to stop the price from falling too low?
also a price collapse isn't necessarily cataclysmic for someone with a mortgage. as long as they can keep making the monthly payments, nothing immediately changes. it's only a problem if you need to sell or if the prices never recover.
>I'm sure there are some subtleties I'm missing, but this has always struck me as a little odd. why do we subsidize agricultural production and then turn around and also pay farmers not to use fields to stop the price from falling too low?
Farm fields need to be left fallow every four years or so to replenish the soil
>Fallow is a farming technique in which arable land is left without sowing for one or more vegetative cycles. The goal of fallowing is to allow the land to recover and store organic matter while retaining moisture and disrupting the lifecycles of pathogens by temporarily removing their hosts.
Fallow fields also tend to be good habitat for small mammals, which in turn draws in birds of prey and stuff and provides habitat for them.
They work with farmers and pay them to actually plant native grasses and nitrogen fixing cover crops for a couple years to allow natural habitat to develop.
As far as I remember, those farmers tend to have a couple fields they rotate every 4 years or so. Leaving one fallow with natural grasses while planting the others with crops.
It’s mostly about buying votes cheaply. There are significant incentives to consistently maintain a food surplus, but one you start handing out government subsidies you get the usual corruption. As subsides crash prices it’s cheaper to just pay farmers to do nothing than to pay them to create a crop that’s just going to rot.
Basically, you don’t want to pay 1$ to farmers per ton of corn just to lower the price of a ton of corn by 1$. The goal is to hand that dollar to the farmers not the general public.
Inelastic just means consumers aren't sensitive to price. The classical example is prescription drugs. Consumers are not price sensitive b/c they NEED those drugs. As such the seller can raise price and not see a drop off in sales.
I think a good example of a highly elastic good is hamburgers. Is McDonalds raises burger prices by 300% there a ton of other options for consumers to switch to and sales will drop.
A better example is brand name prescription drugs. State substitution laws end up meaning that when generics come on market, a lot of consumers become proce sensitive by law since the pharmacy must fill the prescription with the lower priced generic. However, anyone who is still buying the brand name at that point is highly inelastic - they really want the brand name only for whatever reason. Thats why the brand name version of a drug usually spikes up in price when a generic enters the market - theres no way to compete with the generic folks on price so at least get as much out of your smaller remaining market segment that you can by using their price inelasticity
In particular it's not only brand name medications, but patented ones, because then there is by law only one supplier, and the temporarily high price is on purpose as a reward for developing the new drug.
The problem we have then is that it's getting paid for by insurance, and we don't have a good mechanism to distinguish between essential things and merely new things. If somebody comes up with the cure for cancer, letting them soak the insurance companies for 20 years is a fair trade. If somebody comes up with a pill that does the same thing as the combination of two pills that had been standard practice previously, but can convince doctors to prescribe the new thing, letting them soak the insurance companies for 20 years is some kind of regulatory failure.
Well actually, the only patent prescription drug is a bit elastic since insurance/PBMs negotiate on price. In referring to the particular case of a formerly on patent brand name drug that goes off patent that spikes in price.
You'll notice that even over the counter non patented brand name drugs are more expensive than the generics - brand loyalty breeds inelasticity
You should consider that the market really removed 30% of the residents. When 30% of people don't know whether they will be able to find/keep a job to pay the expensive rent, they simply refused to pay the current rent or found themselves unable to. Rent went down.
For me and most people I know when the landlord came asking about renewal (London is all about yearly contracts) for a similar price or more, he was told to f* off. When everybody is doing that, rent is going down.
In a sense the perception of the market is driving the market. The virus is affecting 90% of the population, it's not just hitting the margin.
I say landlord but it's very often a letting agency (taking commission for finding tenants), the landlord is someone abroad or an investment company that's nowhere to be seen. They don't have each other interest at heart.
SF is great (really, just stop it haters!) and there will always be people who want to live there and prices will always be relatively high.
However, for a long time SF has been a place of extreme price distortion because of low (~no) new construction and huge concentration of high paying jobs. The result is many many people feeling trapped there way beyond where it makes sense for their lives. If you are single and living with roommates, making $200K at Twitter, then great! SF is awesome! But when you have two little kids, and/or you just aren't making that much, in a place where small houses are > $2M things are very different. That's me BTW. We hung on for 6 years after having kids and in that time almost all couples with kids we were friends with left. The people we knew who stayed were either much wealthier (had nice exit from previous company) or were really trapped and talked constantly about leaving.
So honestly it does make sense to me. Somewhat anecdotally, I personally know about 15 people who have left since April (including me, SLC is freaking awesome!). For comparison, I personally know exactly 2 people who've had covid. So yeah lots of people really are leaving and the closed bars are just a small factor (IMO), being able to finally move is the much bigger change driving this migration.
I don't think SF will die but rents and home prices coming back down to earth will be a very good thing for the city (my landlord bought the building in 1981 and was charging us $4K/mo for our 900sqft 2br flat, I won't feel bad for him if that deflates to $2500/mo where it should be). The ultra high prices have slowly gutted large parts of the city of anyone but the young or wealthy, mostly tech people. Maybe in a few years SF will be more affordable and consequently a much more diverse city again. That would be great IMO.
I’m curious as someone who has never lived in SV (only visited for work) but do you feel like there are certain areas that displaced SV gravitate towards and would eventually cause property in those areas to rise as well?
I haven't lived in the bay area in 9 years (used to live in Berkeley), but so far my old SFBA friends have moved overwhelmingly to Portland, with one going to Colorado, another to Seattle, and two staying. One is a wealthy engineer, and the other (who has a kid in Marin) an incredibly fortunate person who was curious about this bitcoin thing 10 years ago..
I don't know of any "regular" people who stayed in the bay, except for a relative who's stuck there because of shared custody over kids with an ex and can't practically move. She'd like to though.
Look at Bay Area price-to-rent ratios - some of the highest in the nation. California property prices are heavily driven by speculation. We have laws like Prop 13 that incentivize buyers to take out the biggest loans possible and put NIMBYs on steroids.
If SV workers move to a state that welcomes newcomers instead of punishing them don't expect the same meteoric property increases.
As someone who also has never lived in SV, I'd imagine that, if the majority of these people leaving are young, active, relatively wealthy individuals, that they would move to areas where they can advantage of that position. A lot of people in that demographic are probably relatively active and might have would want to move somewhere with access to lots of outdoor activities. My guesses would be: SLC, Denver, Phoenix.
Disclaimer: I'm from the Denver metro so am obviously biased here. Also please don't move here because housing is expensive enough ;)
Tahoe, SLC, Portland, Austin, Minneapolis. It is only in part about moving somewhere awesome. A lot of people I know are just moving home to where their parents live. So lots of places.
For us, a lot of our family actually is in SF or Seattle. We're a skiing/biking family and I need to be in SF pretty regularly (but not daily) so SLC was the obvious choice. Portland was a candidate because it also has short flights to SF but I figured if we were going to move I wanted world class skiing and biking, in my backdoor, not just decent skiing 1.5hrs away.
As someone who lived in SV 30 years ago... I moved to Portland. And yes, property values here have risen quite a bit since then. And many moved to Seattle where prices have risen even more.
Changing your question a bit: Given that prices here in Portland (and Seattle) are relatively high now (though not nearly so much as SV) what are some other lower cost alternatives on or near the west coast? Maybe Spokane. Possibly Olympia. Eugene? Though now we're getting into smaller urban areas.
Saw friends of friends leave sf and together rent a mansion in Hawaii.
If the bars, clubs, gyms, and even beaches shut down why stay if you are renting at market rate. It’s literally cheaper to move your belongings into storage and move into a vacation home with friends.
Also most sf apartments don’t have office space for all the tenants.
If there was no rent control, prices would drop even more. Firstly landlords are afraid to permanently lock down at a lower price, offering free months of rent instead. Secondly rent controlled tenants are afraid to lose their apartments, that are still below the market rates.
Rent control has a miniscule impact on housing prices according to the latest economic research (1). You won't hear that from people still reading 60 year old neoconservative economic theory, though.
Rent controls do sometimes specify how much rent can be raised year over year. Drop it too low one year, be stuck with relatively low prices in the short term.
They regulate rent increases in Oakland at least. Of course our landlord took the maximum allowed rent increase each time, as if it were the required increase rather than the maximum.
I don't live in the bay area and pay half the rent for three times the space in Boston... not exactly a small town... the Bay Area was already unattractive for me financially and I have an advanced degree in an engineering field.
I, like many of my peers, moved out of Oakland this year over the summer. For a while, I was considering staying around and trying to lock in a lower rent on a larger space, but rents really didn't budge.
Your effective rent _did_ drop, but landlords did it by offering 2-3 months of free rent on a one-year lease (with old rates applying.) It doesn't take Nostradamus to see what happens in 12 months: maximum allowed rent increase and no more sweetheart deals, meaning an effective increase of like 35% (or move again to try and get another deal somewhere else.)
It wasn't worth it to me, so now I'm paying less than half my previous rent for around 2x as much space in SLC.
Rent control means that renting at a low price this year means you're also renting it at a low price next year. Without rent control you could give a discount this year and then jack the rate back up to normal next year.
Also not all property management is about renting out. Sometimes it is just about parking wealth and extra rent is gravy. So if you are just parking, moving to the max rent possible can be a desirable effect. As you may price people out and you do not have to have someone to 'manage' that property as intensively (broke AC, leaky sink fix, etc). Which would be an annoyance on a passive property.
> are people really weighing that so heavily that they’re moving?
Given region as a large portion of young/single professionals, I believe it. What you pay to move/break a lease is a fraction of what you’d save after a few months of “normal” rent. Or no rent if you’re going to stay with your parents. It will be relatively easy to move back when they need to, and prices will be better. This group has no deep local community dependancies (eg family, childcare, ete). and is still probably rather nomadic from their college days.
I personally live in Texas, lower COL, but I am tied into my local community due to family, owning my home, and general entrenchment type stuff that comes with age. Otherwise I’d have bailed in April for a rural or expat setting.
While I don't want to live in a super urban place like SF, I will always live near a downtown. The draw for me is that I hate depending on cars, so I want everything (mail/barber/grocery/work/restaurants/etc) within walking distance.
The lifestyle advantage to walking around as your primary source of commute is so significant that I couldn't imagine ever going back.
Yes. I live in SF and I see people loading up moving vans in my neighborhood all of the time now, my neighbors in my row house moved to auburn, multiple houses are now up for sale, it used to be impossible to get a parking space but now it is not a problem anymore. Things have definitely changed
If I were living in SF and gone fully remote for the foreseeable future, I'd absolutely get out of my expensive apartment and (literally) head for the hills.
Some of my coworkers have done this. One of them has moved to Santa Cruz and another is staying with their parents. I would have moved if it wasn’t for immigration complications and laziness. Depending on how things work out from here, I might just go back to live with my parents until things blow over. If not, I am going to upgrade to a nicer apartment as a compromise
I would counter that proximity to work is a huge influence on where people decide to live. There are (or will be) bars and restaurants everywhere, which means if you can work from home, there is significantly less incentive to live in a small, overpriced apartment.
The bars are restaurants available in most cities in the USA do not compare to the bars and restaurants in cities like SF, Los Angeles, NYC, Tokyo, Paris, etc.....
I mean places like Flagstaff Arizona, or Temecula California, etc.... In the cities listed in the first paragraph there are, unique bars (not sure what word to use) and interesting restaurants. In most cites there are just places like AppleBess and the local versions of same. If that makes me a bar/food snob okay but what's available in many cities is just not comparable in random small city.
Flagstaff is a decent sized mountain town. Decent sized mountain towns have pretty good food and bars, including unique establishments. Of course they won’t please a true snob looking for a new home, but they plenty suit low key snobs like me. Last time I made a pit stop in Flagstaff it took 30 seconds on Yelp to find a great independent Cajun-creole joint with a pleasant patio, friendly staff, and delicious food and craft beer.
And frankly, let’s not let SF off the hook for its large proportion of mediocre restaurants and bars. IMO they are a another sad consequence of Prop 13: old businesses with low property taxes don’t need to be much good to survive, but the cost of starting a new business is spectacularly high.
Do most old restaurants in SF own their property rather than rent? If they are renting, why are landlords passing down prop 13 property tax savings to them especially?
Most of the interesting bars and restaurants in SF are closing as we speak. As the pandemic drags on expect it will continue. Who do you think will have the money to replace these places?
Investors, like always. Do you think its mom and pop opening a bar with smoke infused cocktails in SF, or anywhere else for that matter where commercial rent has been astoundingly high for decades now? Investors will buy back in once it makes sense economically. Restaurant turnover is typical.
Right investors who open cookie cutter hipster bars that exist in every other city. The unique bars and restaurants in SF that have been there for decades are dying and they won’t come back.
I don't think it makes you a snob to say that there is better food in certain cities. If you have any special requirements, like being vegan, you aren't going to find anywhere near the same options in smaller cities. But I think for most people, access to quality restaurants is fairly low on the list. Certainly far below proximity to work. Put another way, would you pay an extra $2k a month to be able to eat at certain restaurants? You might! But most people wouldn't.
This was maybe true twenty years ago, but not anymore. In addition the variety of food available at grocery stores or online is vast and with an actual kitchen you can make food you like at home.
Bay Area demographic process involves a pretty large net influx of people from abroad and an almost equally large domestic net outflow of people to other states. If you stop the former but the latter continues, housing pressure suddenly disappears.
Bay Area is insane. I pay $850/mo for a 4B/2BA house in upstate NY.
I work locally and telecommute now, but I used to commute regularly to the Boston and NYC metro areas with commute times similar to what I hear about from some colleagues in the Bay area. 2 hours on Amtrak (+10m drive) is much more pleasant than 90 minutes in the car to me. The haul to Boston was truly awful, but the pay was too good to pass up.
Wow! My mom lives in a small, dated apartment in an unexciting suburb of Rochester away from colleges, with paper-thin walls and ceilings, and pays about $1000 in rent. That seems standard for the area. About 20 years ago we paid $650 a month for a tiny two-bedroom. How does your upstate New York cost less than one fourth of that?
Rents always suck upstate. A two bedroom in a nice development in a suburban town near me is about $1400/mo. Ownership is always cheaper.
As for the costs -- I cheat a bit. I've been able to build more equity over the years and refinanced into lower LTVs as time and rates went down. I bought my first house as a student at a SUNY school -- my mortgage was about the same as a "student ghetto" apartment. This house I bought about 15 years ago. In my urban neighborhood, houses sell for about $135 sqft today. In the suburbs, it's about 30% more, and you are basically paying for better schools.
You can get a small, nice house in a place like Fairport, NY for $150k. I don't know that area super well, but you might find lower costs in an adjacent county without the tax/infrastructure burden of Rochester.
I know this is an unpopular opinion, but SF is like an open air homeless shelter and getting worse. Crime is also getting worse. People put too much focus on cost of living. Many people have plenty of money to afford to live there, but it's increasingly difficult to justify that cost compared to the quality of life.
My friends are leaving for cities like LA where they expect to enjoy it more. In my experience the majority of new SF residents move in to start a new job - not for the food, nightlife, or culture. If the jobs are remote, that segment will not come back, and will not move to SF in the first place. It’s a good thing, fewer people having to make trade offs for better careers.
It also seems like renting is the most optimal way to take advantage of a long term, temporary WFH situation.
A major advantage of renting (over owning) is being able to move when your lease is up. If the WFH thing blows over you can always move back at that point but at least you'll have saved yourself X months of expensive rent.
You’d be surprised. There is a surge of demand away from metro areas eg upstate NY, Tahoe, etc.
I don’t get it. The pandemic will get under control, and people will go back to offices. Will employers require 5x per week in office, or 2-3x per week, or perm WFH?
I am skeptical. Yes a lot of Bay Area companies are allowing work from home for now, but are people really weighing that so heavily that they’re moving? If we’re blaming the pandemic, maybe it’s that fewer people want to move to the city because they can’t enjoy it (bars, restaurants, etc)