patrick.net

War says

Rental rates are falling when measured in price per square foot.

Not around here. I've seen identical apartments re-rent for more than ever before.

I suspect Bubbles Ben's "Operation Twist" and ZIRP are driving investors and speculators to seek yield anywhere they can, including buying up RE and wagering on startups. Since SF has many startups and practically prohibits building more housing, the result is a huge inflow of $$$ chasing very few housing units. Artificially inflated demand + artificially constricted supply = higher prices.

All I have to say is, Fuck Bo Lu and his gf and his shitty little company. I mean, seriously, how many goddamn online financial advice companies are there already?

He's gonna be packing his bags and heading back to Seattle (a beautiful city, BTW) by this time next year, just like his forebears at Pets.com or milkandcookies.com did a decade ago.

Facebooksux says

He's gonna be packing his bags and heading back to Seattle (a beautiful city, BTW) by this time next year, just like his forebears at Pets.com or milkandcookies.com did a decade ago.

Yesterday a contractor who was renovating apartments told me that with the high rents, turnover has increased substantially. It's good for his business but he doesn't like the city anymore - too many addicts in doorways with needles. He used to live in SF, second generation, but now he just works here.

IMO a related issue is the homeless-industrial complex, which makes more $$$ "helping" each vagrant than most people earn in a year. It exacerbates a city of extreme poverty and wealth, sidewalks that can feel like a hospital ward, endless sirens. It's warped the definition of liberal.

Net result: people arrive, overpay, get fed up, leave, new people arrive, rinse, repeat.

Rents are definitely rising around here. I have been renting in Mountain View since 2008. From 2008 - summer of 2010, I was negotiating rent DECREASES. Then BAM, summer 2011 comes, and it happens that I need to find a new apartment (I was rooming with coworkers in a sweet bachelor pad setup, but alas my GF and another guy's pull the "we need our OWN apartment" card). So we start looking. The huge complex we were in had a 1BR go from $1400/month to $2400 a month in about 8 months. The 3BR I was in and paying $2300 was signing new leases at $3400. Going to apartment listings that were listed online was mostly useless since every one was mobbed with other late-20's DINKs like my fiancee and I. Basically, call the same morning that the listing was posted or don't bother. Finally, I decided to get on my bike and ride around the neighborhood seeing if there were any For Rent signs. There were, we checked out the unit at 9AM on a Saturday and liked it and had the paperwork in by 9:20AM, about the same time that two other couples were showing up to see it. That's where we are living now.

WHAT. THE. FUCK.

As noted above, investors are on a stampede into the rental market since it is a much better looking bet than stocks or bonds. That isn't really the reason for the price increases though, but rather a symptom. Investors are going there because more and more people are renting and able to pay more to do so. Why? Well, around here there is very little inventory of housing for sale, and what is available is very very expensive, even for a fixer-upper. Think $700k+ for a 1000SF 2BR that needs $100k in fixing & updating. So, people basically have to rent since there is very little to buy, and the cheapest stuff available is very expensive. If you want a move-in-ready house in MV, you need to be ready to shell out almost $1M. Sunnyvale was more reasonably priced, but it is blowing up now because all the people that gave up on MV are looking there. Same with Campbell.

Get ready for a weird decade where house prices AND rents go up. Why? Because they can. This will further destroy the greater economy since all of people's disposable income will be eaten up by mortgage payments and rent. Both are generally unproductive for the larger economy. Mortgage payments go to a TBTF bank and end up turning into more mortgages. I think that most of the RE investors out there are probably baby boomers looking to fund their upcoming retirement, and the money paid to them will mostly end up in the health care system. We are entering new, uncharted economic waters where we find out what happens to an economy that must still obey the fundamental rules of economics, but has been battered and abused by private interests doing their best to manipulate it for their own gain. I really hate to say it, but I think that the coming decade will see the final death knell of the American middle class.

curious2 says

IMO a related issue is the homeless-industrial complex, which makes more $$$ "helping" each vagrant than most people earn in a year. It exacerbates a city of extreme poverty and wealth, sidewalks that can feel like a hospital ward, endless sirens. It's warped the definition of liberal.

I am not familiar with this. Can you give a quick overview of what is happening?

bmwman91 says

I really hate to say it, but I think that the coming decade will see the final death knell of the American middle class.

Sure enough. Middle class will be a toast,so will be the governments. Quality of life will really suck for the middle class.

bmwman91 says

Can you give a quick overview of what is happening?

"The road to hell is paved with good intentions." Well-meaning naifs are easily misled to support programs that "help the homeless" when it's really about helping the homeless-industrial complex, in the same way that "Operation Twist" is supposedly about "helping homeowners" when it's really about helping Fed banks. Medicaid dollars, the local taxes to support SFGH, "Healthy San Francisco," the 1980s decision to empty mental hospitals onto sidewalks, it all combines. Each vagrant can throw off hundreds of thousands of $$$ annually in revenue to hospitals, emergency services, prescribers, etc. There are some efforts to reform slightly, e.g. Bevan Dufty's HOPE program, but they're like trying to divert a flood with sandbags. The fundamental forces are the revenue incentives and subsidized programs supposedly intended to "help" strangers by spending a lot of money.

War says

Doubtful. And it it were true, it's transitory.

It may be transitory, but it's definitely happening currently. Theory must adjust to facts. You insist always on saying that rents are falling, but I am observing that in this area they are increasing. In this one example at least, the press reports are (perhaps surprisingly) correct.

I wonder if it would be a good idea to pass nationwide legistalation that stipulates that rents can only rise to the greater of 5% per year or "official" inflation rate. That may stabilize both the renter market and the housing market. What do private landlords on this site think of this idea? How would this influence you choosing to buy real estate to rent out vs investing your capital into stock funds, bond funds, etc?

dublin hillz says

I wonder if it would be a good idea to pass nationwide legistalation that stipulates that rents can only rise to the greater of 5% per year or "official" inflation rate. That may stabilize both the renter market and the housing market. What do private landlords on this site think of this idea? How would this influence you choosing to buy real estate to rent out vs investing your capital into stock funds, bond funds, etc?

Totally disagree. Look at what rent control has done to places like S.F. Less government meddling, the better.

Goran_K says

Look at what rent control has done to places like S.F.

SF is doing a lot better than many other places that don't have rent control. SF's housing problems result from zoning and planning restrictions that prohibit constructing enough supply to meet the demand. Those restrictions create myriad opportunities for hidden taxation and corruption. Eliminating rent control would disrupt the city without sufficiently reducing market rents. SF needs more supply, not reshuffling the existing supply.

That's just removing a layer of government meddling, and leaving another layer in place. Rent Control has ALWAYS restricted supply anywhere it's been implemented.

Rent Control kills open market. All cities I know with rent control have very expensive rent.
One example: Someone who renting same unit for20 years and pay $450/mo. On the same floor to the same floor plan unit, now deregulated, new tenant is coming and pay $3,000/mo. Guess who is actually paying for building maintenance and subsidize other tenants?
Best solution is open competition by allow building sufficient amount of apartment, giving plenty of choices for future tenants.

What I suggested was not as draconian rent control as what's in S.F. What I proposed was to cap increases at greater of 5% or inflation rate. The way S.F. does it is that properties built prior to 1978 may only increase rent at 60% of inflation rate per year. With 5%, what's so unfair about that? That basically means that rent can double every 14.4 years. How is that so unjust to the landlords? How is this any worse than the rent increases that have been witnessed around here the last 2 years? Also, with 5% increase, I seriously doubt that people will hold out in properties for decades - it is not some manna from the sky.

Goran_K says

Rent Control has ALWAYS restricted supply anywhere it's been implemented.

Do you have any source for that? Such blanket generalities sound like talking points unsupported by evidence. Los Angeles seems to have quite a bit of supply, for example, and NYC is building a lot.

REpro says

Rent Control kills open market. All cities I know with rent control have very expensive rent.

Rent control doesn't "kill" anything. SF had falling rent for years following the collapse of the dot-con bubble. Both LA and SF were quite reasonable just a few years ago, but now Fed ZIRP and "Operation Twist" are deliberately inflating housing prices. ZIRP and "Operation Twist" deliberately replace market pricing with Fed pricing, while rent control merely stabilizes the gyrations a bit.

The bottom line is always supply and demand. If you constrict the supply with zoning and planning restrictions, and inflate the demand with ZIRP and "Operation Twist," you get higher prices. Studies of re-shuffling by eliminating rent control find 10%-20% drops in market rents, but SF market rents should fall at least 50% from their current heights. That doesn't happen, because the powers that be profit from the doubled rents and doubled sales prices that they are currently collecting.

Rent is rising here in northern VA too. At least in my crappy apartment complex. My lease is ending at the end of this Nobember, so they did send me a lease renewal letter in September, asked me $65/mo more for my next lease. I got on the internet, found few interesting facts. My next door neighbor is moving out and advertised rate for that unit is $75/mo lower than what they asked me for mine. I sent off the letter stating that fact asking if they can lower my rent. They agreed to cut $30/mo off if I decided to stay for another year. Well, that's nice but I am still paying $45 more than my next door. So, I went to the office today to discuss this issue, and found their attitude kind of... not very cooperative, like ... whatever. I check the internet again, I found they jacked the rent rate up, and now my new next door neighbor have to pay $120/mo more than me. I was like WTF happened in 3 weeks? They was like, market changes, so what are you gonna do? I signed up for another year... reluctantly.

Generally speaking rent is rising slower than inflation in areas with high supply and slightly faster than inflation in low/restricted supply location. Recent several years rent was flat / reduced all over the country due to flow tenants to housing easy mortgage money supply. Now is time to recoup what was lost. Anyway, IMO rent already reach ceiling (“seaside” experience is good example) in many location and would not expect further “sharp” increases. By checking move.com I noticed some reduction happening already. I think the equilibrium was July-September. Also, construction of new apartment complexes sharply responds for higher rent. Some outflow tenants scared by high rent and purchased houses have its toll as well. Now landlords can pray for salary increases.

curious2 says

Los Angeles seems to have quite a bit of supply, for example, and NYC is building a lot.

Rents in Los Angeles and NYC are some of the most expensive in the country. I'm not sure those examples actually help your case.

Goran_K says

Rents in Los Angeles and NYC are some of the most expensive in the country.

You're taking pieces out of context. Your prior argument was that rent control restricts supply, but in reality supply depends on construction, which is restricted by zoning and planning. Prior to ZIRP and "Operation Twist" Los Angeles rents were not nearly as high as NYC, even though both cities have rent stabilization. Los Angeles has tended to have relatively lower rents than NYC because of the ability to build more in LA than in NYC. Again, it depends on supply and demand; if you want higher prices, restrict supply (zoning & planning) and inflate demand (ZIRP and QE); if you want lower prices, allow construction and stop ZIRP & QE.