Okay, before we get into alarming stats on out-of-control San Francisco rents that are making life a living hell for the recently transplanted startup hopefuls (including a few of our own writers), let’s get one thing out of the way: This is not like 1999. At all.
I’m going to repeat it, put the words in bold and italics for the guy who just read the headline and skipped to the comments to say “IT’S JUST LIKE 1999!”
This is not just like 1999.
There are a lot of economic reasons why, as we explained in musical form last week. But in terms of day-to-day life, it’s still nowhere near as crowded or expensive. Back then, I had to live in a hotel for three months in San Jose before being “lucky enough” to get a two-bedroom condo (in San Jose) for $3,000 a month. I had to jump on the ad immediately and show up with pet references and a credit check already done and give them a $6,000 check on the spot. And everyone I knew was totally jealous of the steal. Back then the idea of moving to San Francisco on my “mere” salary of $80,000 a year — several times more than I had ever made before — was a total joke.
That’s not where we are now.
That said, we are somewhere pretty outrageous. According to Zillow, rents in the nine-county Bay Area increased nearly 7 percent in the second quarter. But in San Francsico — where the bulk of the action is happening this time around — rents have risen nearly five times the rate of home values, an astounding 23.2 percent year-over-year. Not surprisingly that’s one of the highest rental increases in the country.
Zillow released national figures today in which they called the bottom of the housing market, after four consecutive monthly increases in median home values, as measured by the Zillow Home Value Index. Year-over-year the increase was small — just .2 percent from the second quarter of 2011 to the second quarter of 2012. But it was the first annual increase in home values since 2007. Zillow forecasts that 69 percent of the markets it covers will experience an increase in home values over the next year. Nationally, it forecasts an increase in home values of 1.1 perrcent.
In the Bay Area home values rose 2.5 percent from the first quarter and 1.3 percent year-over-year. They rose nearly 5 percent year-over-year in San Francisco.
Hallelujah! I thought reading this, as a home owner. But less because of my home’s value –I’m not moving anytime soon — More because thank God I don’t have to rent in San Francisco anymore.
This is clearly being driven by the tech economy. Newly public companies like Yelp and Zynga are based in San Francisco, and other pre-IPO giants like Twitter are as well. Many employees of LinkedIn, Pandora, and Facebook live up here too. Meanwhile, venture capital was disbursed at its highest level in years the same quarter the surge in rents occurred. Likely not a coincidence.
The survey shows that a city can arguably have too much of a good thing. The news is great nationally, but locally the sharp increase in rents will prove a challenge for startups looking to hire and move people to San Francisco. Higher rents mean higher salaries. That means bigger rounds of capital and higher burn rates. That means entrepreneurs having to give up more equity just to hire staff, if the increases continue.
And what’s more, there’s going to be a big backlash from the progressives of San Francisco who are generally at war with the city’s booming tech industry. If you thought the backlash against giving tax breaks for Twitter was rough, it’s about to get crazy here as tech’s excesses make the city unaffordable for artists, teachers, and struggling families. Tech companies at least can raise more money and give raises. Other parts of the city’s economy can not.
San Francisco has pretty strict rent control rules, so if you’re in a good place, my advice is to get comfortable. Or sell your entrepreneurial soul and get cast in a reality show. Then Popchips can pay $17,000 a month for you to live in a mansion, while the rest of us eat $3 Mission burritos.
There are actually places in the Bay Area where you can live more cheaply than last year. Surprisingly, Redwood City saw home prices decline slightly. Oddly enough rents fell in Palo Alto by about 4 percent even as home prices grew by 11 percent. The easy speculation is that the Facebook millionaires all moved out of rentals and into homes. But the drop in rents was pretty contained. In nearby Menlo Park and Mountain View, rents grew by a huge 17 percent.
Interestingly, there are two companies that weren’t around during the last wave alleviating some of the capacity issues as profit seekers pour into the small seven mile by seven mile metropolis. During the last boom, snagging a cab was near impossible. This time we’ve got Uber. Sure, not everyone can afford the pricey service, but the convenience is so great, that many of the people flooding the city for startup jobs will likely use Ubers, keeping pressure on the constrained Taxi system. That’s good for everyone. (Except the taxi drivers who loved hogging the wealth and refused to hand out a reasonable number of new medallions during the last boom.)
The other is Airbnb. I’ve heard of several new recruits for tech companies just Airbnb’ing it up for months while they try to find an increasingly hard-to-find steal. That’s what our recently relocated Andrew James has been doing. The dramatic increase in rent being reported by Zillow today was no shock to him or Trevor Gilbert, who also recently moved here and has been apartment hunting.
Both say on Yammer that people are subletting “closets” on Airbnb — hopefully they mean that figuratively. When I suggested an illustration for this story of a sad Andrew and sad Trevor living under a bridge, Trevor replied, “The bridges have all been Airbnb’d to hipsters. Port-o-potties are the new bridges.”
[Illustration by Hallie Bateman]