What Happens to SF Rents After the Vaccine?

Many are leaving San Francisco in the rear view mirror during the pandemic — but others are moving in.

There’s no time like the present to sign a lease in San Francisco. 

As many as 89,000 people may have left the city since the start of the COVID-19 pandemic, and vacancies have more than doubled since last year. According to rent reports by Zumper, the median rent for a one-bedroom apartment decreased from $3,500 in January to $2,700 in December — a 22.6 percent year-over-year decrease that marks the city’s lowest rent prices since 2013. 

For San Franciscans fortunate enough to remain employed, that’s turned the unthinkable into reality. Long waitlists and intense bidding wars for cramped, overpriced apartments have given way to weeks of free rent and endless concessions.

But what happens to rent prices once COVID-19 vaccines become widely available? While the pandemic may have long-term implications on demand for rentals, experts say that people shouldn’t expect the renter’s market to last long.

Tech Exodus

Back in March, nearly all of the city’s offices went dark as the business world shifted to remote work. Hours-long grainy Zoom calls and after-hours Slack messaging replaced hours-long in-person meetings and, well, after-hours Slack messaging. While remote work policies aren’t new in the tech world — and debate persists about the efficiency and trade-offs of the practice — the pandemic has greatly accelerated the trend. 

In May, San Francisco-headquartered companies Slack, Square, Twitter, and Coinbase announced they would permanently extend their fully-remote work policies. Facebook made a similar announcement from its headquarters in Menlo Park, with Mark Zuckerberg postulating that half the company could be working remotely within the next 5-10 years. 

That means employees previously bound to sky-high housing prices near their workplaces are leaving for more affordable locales. 

“We’re seeing a lot of migration data of people leaving the Bay Area entirely for other markets,” says Taylor Marr, lead economist at real estate brokerage website Redfin. “Some of that [migration] is in the suburban counties, where people might still want to have access to the broader labor market even if they’re working remotely.”

Migration data from Zumper shows that those leaving the Bay Area are largely moving to cheaper nearby cities. The most popular destination in 2020 was the Sacramento, Stockton, and Modesto metro area, followed by Los Angeles County and Sonoma County. 

In the short term, the tech exodus from San Francisco — along with a more general renter exodus due to economic downturn and mass unemployment — has caused the largest rent price drops in the country. In the long term, Marr says, we can expect many remote workers to continue to move to regions where they can afford cheaper housing and more space for home offices. That could lead to a decreased demand for rental properties and increased purchasing power for those who remain in the city.

Sale Pending

When your living space becomes your office, classroom, and home gym, you’re going to want more space than an apartment can provide. 

With remote work becoming more ubiquitous and mortgage rates continuing to drop, demand has shifted from the rental market to the for-sale market. As such, the same force that drove rent prices down beginning in March, led to increases in the home buying market. In November, median home prices in California rose 18.9 percent year-over-year. 

According to Marr, the relationship between the rental and for-sale housing markets acts as a “natural feedback loop” that controls prices in either sphere from rising or falling uncontrollably. 

“We can expect [this natural feedback loop] to occur in three stages,” Marr says. We’ve already experienced the first stage, where the shift in demand from the rental market into the housing market leads to a short-term decrease in rent prices. In the second phase, which we’re currently experiencing, the increased demand for houses pushes up home prices. 

Because home prices are high and rent prices remain low, that prevents an everlasting trend of people leaving the Bay Area rental market entirely. Low rents also encourage migration into the area from newcomers, which Marr notes has been already steadily happening for months.

That leads into the third phase, which Marr predicts is likely to occur sometime in the spring. The dramatic increase in home prices and decrease in rent prices may lead some rental property owners to pull properties out of the rent market and list them for sale instead.

Supply decreases in the rental market and increases in the for-sale market, which eventually has the effect of tapering down home price growth and tightening the drop in rents. By spring, he says, renters should expect to see rent prices begin to stabilize as a result of this natural feedback loop. 

But will rents in San Francisco return to pre-pandemic levels any time soon? Marr thinks that’s unlikely for two reasons. 

The first is due to mortgage rates, which are at a historic low following action by the Federal Reserve to boost the economy amid the pandemic. Low mortgage rates encourage buyers to purchase homes and keep some demand out of the rental market. 

“Pre-pandemic mortgage rates were close to 4 percent as early as last year. In order for rents to return to [pre-pandemic] amounts, we would expect mortgage rates also to return to that amount,” he says. “And the general consensus is that mortgage rates are not likely to rise very high at all in the next year or two — definitely not returning to near 4 percent levels.”

Local Recovery

The second way to get back to the level of demand that would warrant pre-pandemic rent prices, Marr says, would be a big return to the city from former and new residents. But that’s also unlikely in the short-term because housing demand is dependent on local and national economic recovery. 

“We don’t expect anything to change dramatically over the next 4-6 months,” says Venoo Kakar, an associate professor of economics at San Francisco State University who studies macroeconomics and the city’s regional housing economy. “The value of housing is very tightly linked to economic recovery … it’s the local economy’s, job growth, employment growth, and income growth that is going to determine what happens to housing.”

As the vaccine rolls out, that means keeping an eye on when companies bring employees back into the office, when students return to universities, and which sectors reopen first. People live in the city for its amenities, after all, so the return of the retail, hospitality, and arts sectors will stimulate the local economy and drive migration back into the city.

“And it can happen very quickly, because San Francisco is a very strong economy,” Kakar says.

One uncertain component of that equation is how the behavior of individuals may be changed by the pandemic. Even after a vaccine rollout, will people feel safe enough to step out and return to normal life? What about indulging in amenities that for over a year have been considered dangerous, like hanging out at a bar or attending a crowded concert?

The speed at which the local economy will rebound depends on how quickly people return to the city, how they behave, and the resources they’ll have at the tail end of the pandemic — all of which are potential drivers of demand for housing. It’s still unclear when rent prices will return to pre-pandemic levels or if they ever will, but Kakar is optimistic that we’ll start to see San Francisco recover — and rent prices slowly begin to rise again — as soon as a vaccine becomes widely available in mid-to-late spring. 

Looking Ahead

There’s evidence to suggest that the rental market in San Francisco may already be approaching its price floor. According to a December rent report by Zumper, rental price decreases in the city have slowed for the third consecutive month. 

“We’ve been very, very busy,” says Jackie Tom, who owns a leasing agency called Rentals in SF that focuses on filling vacancies for landlords. “And we’re supposed to be in the slow season.”

She’s noticed an uptick in demand for her property-matching services as the pandemic has progressed, which indicates that more people are taking advantage of low rent prices to move into the city. But despite the resurgence of interest in housing, Tom doesn’t expect the current renter’s market in San Francisco to change any time soon.

“Because there’s so many properties on the market, people have choices,” Tom says.

Locking in a tenant now also means throwing in generous moving bonuses and concessions like months of free rent — or in Tom’s experience as a property manager herself, lots of free furniture. When a prospective tenant complained about the lack of storage space in Tom’s four-bedroom Victorian property, she offered to buy complimentary IKEA closets (of the tenant’s choice!) for all the bedrooms and a shelving unit for the back porch. 

“And then I threw in a barbeque grill to seal the deal,” she laughs.

In terms of rental prices, however, Tom isn’t so sure that we’ve reached the bottom yet. The slow holiday season is typically a good time to renovate and prep units to be listed for the rental market, and many landlords who may have held off on putting vacancies on the market in hopes of better rental rates are likely to follow suit in listing properties in January and February.

“There’s a huge amount of vacancies being unloaded on the market, and people aren’t moving here,” she says, adding that the increase in supply is likely to sustain low rents until at least the end of the first quarter. 

The final verdict? Rent decreases are likely to begin leveling out within the next few months. We can expect rents in San Francisco to rise when a vaccine is widely available and the city reopens in mid-to-late spring, but they won’t return to pre-pandemic levels any time soon. 

The most expensive city in the country for renters is still the most expensive by a long shot. But if you’re fortunate enough to afford living here, take advantage of the current market to get an affordable rate. And if possible, try to lock in on a rent-controlled apartment. Prices won’t be this low again for years… barring another pandemic, of course. 

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