Example of rent drop in San Francisco: one bedroom down from $4,300 to $3,150

After hearing of rent drops in Manhattan, I read about one example of rent dropping in San Francisco:

Until the pandemic hit, the city’s housing market was so tight that would-be renters lined up for viewings and arrived with thousands of dollars in cash, ready to sign a lease on the spot.

But now landlords are hard-up for tenants and some are offering several months free, said Coldwell Banker realtor Nick Chen, who recently rented out a one-bedroom for $3,150 that before would have easily gone for $4,300.

“San Francisco rents have been really inflated over the past couple years,” Chen said. “It will come back, but I think the question is: Will it come back to the level it was at previously? Maybe not.”

This is a sizable drop in rent, roughly 25% in a short time frame. Yet, that is still a price that few Americans across the country could meet. Even with significant changes in social life in cities like San Francisco and New York, this does not mean these places are now accessible to many.

Presumably, there is a bottom floor below which rents will not drop. The person who owns the property has their own bills to pay. Some people will see this as an opportunity to get a place in San Francisco at a lower rent and jump at lower prices.

Or, does COVID-19 shift housing prices in high-priced markets for a longer time? If businesses decide to continue work from home and employees are skittish about being around a lot of people in a dense city, do rents drop even further? Is there an opportunity for developers, buildings owners, housing groups, and local governments to jump in and acquire and/or offer cheaper housing? I would not guess expensive housing markets like San Francisco, Seattle, or Manhattan will soon become reasonable but perhaps there will be some opportunities for more people in the region to take advantage.

How far might rent drop in Manhattan and other cities and who will benefit?

As some people reconsider living in Manhattan and other cities with high housing costs amid COVID-19, how far might rents drop?

According to StreetEasy, the median rent has fallen below $3,000. That is the lowest price since 2011.

The third quarter of 2020 also marked the first time since 2010 that Manhattan, Brooklyn and Queens all recorded year-over-year rent declines.

StreetEasy says renters are no longer willing to pay the so-called “commute premium” of living in Manhattan, because so many people are working from home.

Any rent drop in Manhattan or in New York could provide opportunities for people who even just a short time ago had little chance to live there.

At the same time, dropping below $3,000 for the median suggests that rent is still pretty high. Who can take advantage of this drop? Those with resources to do so, not necessarily people who need affordable or cheap housing. Indeed, if these lower rents quickly induce a number of people to take advantage, then rents could stabilize and head back up.

Perhaps there is little that could actually move rents and housing prices in certain housing markets to a point where many more residents could take advantage. A pandemic is unlikely to lead to the production of more housing and struggles with employment, among other factors, will limit who would move to big cities with temporarily lower prices. At the same time, COVID-19 could help nudge conversations about housing in a productive direction.

Chicago area apartment market continues price increases

With homeownership still moving downward in the United States, the apartment market in the Chicago suburbs keeps going up in price:

The median net rent in the Chicago suburbs rose to $1.29 a square foot in the fourth quarter, another record, up 4.7 percent from a year earlier, according to a report from Appraisal Research Counselors, a Chicago-based consulting firm. The occupancy rate was 95.3 percent, versus 95.1 percent a year earlier.

Suburban rents have increased five years in a row—they rose 21 percent over that period—as more people have held off on buying a home, either because they can’t get a mortgage or are wary of owning after the housing crash. More recently, the improving job market has boosted demand for all housing, and apartment landlords are getting their share.

On the supply side, new developments are sprouting up from Naperville to Northbrook. Developers completed more than 3,300 apartments in the suburbs over the past year, the most in a decade, and another 2,700 are under construction, according to Appraisal Research…

Yet the revenue side of the equation is about as good as it gets for suburban landlords. Market revenue performance, a metric that combines the occupancy rate and median net rent, hit $1.23 in the fourth quarter, the highest it’s ever been, according to Appraisal Research.

An interesting housing market these days. Starter homes are not being built. New McMansions are back even as older McMansions sell briskly. People are considering disaster chic. The luxury market is booming in big cities like New York.

If apartments are indeed popular because they offer more short-term flexibility, how many suburbs will allow the construction of many apartments? Historically, wealthier suburbs in the Chicago area tend to avoid apartments and their more transient residents. So, I would guess most of these new suburban apartments are actually higher end, the kinds of places appealing to young professionals or the just retired and often located near cultural or transportation amenities like denser downtowns and train stations. If so, more expensive apartments don’t help many in the housing market who still need reasonably priced and conveniently located housing in the Chicago region.

“Peer to peer” car sharing ramps up

I’ve talked before about how car sharing service Zipcar has freed my wife and me from needing to own a car.  Unfortunately, similar non-ownership options aren’t available to most Americans for the simple reason that Zipcar’s fleet is mostly concentrated in urban centers and around college campuses.  For many suburbanites, the prospect of an inexpensive, on-demand, by-the-hour car rental hasn’t been an actual prospect.

With RelayRides rolling out nationwide this week, however, that may be changing:

Companies like RelayRides…offer a different take on carsharing than the one established by Zipcar and its competitors. While those companies own fleets of cars, RelayRides is entirely peer-to-peer — if you have a car, then you can make it available for rental when you’re not using it. RelayRides says the average car owner makes $250 a month from the program.

Since it takes advantage of the cars already on the road, founder and chief community officer Shelby Clark argues that peer-to-peer carsharing can have a big impact — after all, a fleet-based company couldn’t simply declare one day that it’s launching nationally.

This is potentially very disruptive of Zipcar’s business model.  RelayRides (and other challengers like Getaround) don’t have to go head-to-head with Zipcar in many parts of the country because those markets are utterly unserved.  And even where RelayRides has to go head-to-head with Zipcar, their prices seem comparable.  So long as the reservation process and pickup hassle is roughly the same, I know I would have no problem booking cars through RelayRides.  My purchases within an active market for by-the-hour car rentals would simply be driven by normal consumer considerations like price, convenience, customer service, etc.

Indeed, this is the beauty of the free market, as Leigh Beadon over at Techdirt reminds us:

Nobody is immune—not even the last disruptor. Companies like Zipcar changed the game with their car-sharing services, but they are already facing new challengers….How big and how successful [RelayRides’] approach will become remains to be seen, but it’s a creative idea that makes a clear point: disruption can happen anywhere, to anyone. As the entertainment industry continues to fight progress, experts from every side of the debate love to make profound-sounding statements about how the internet has changed our media consumption habits, but that’s old news. From mobile-based taxi & limo services to the coming era of 3D printers and things like the Pirate Bay’s Physibles site, digital technologies are disrupting a lot of things, not just media.