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San Francisco Rentals - The Inside Scoop On the San Francisco Rental Market

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Despite the recent collapse of a housing bubble which brought the price of homes crashing down as much as 20% in some neighborhoods, San Francisco rentals remain one of the most expensive rental markets in the nation. Why? Three reasons really.

First, San Francisco is a relatively small landmass on which to house 800,000 plus inhabitants; there are no unincorporated areas in which to build new housing, so the laws of supply and demand drive up the cost of housing that already exists.

Second, almost two-thirds of San Francisco households are already renters as the median price of a home in San Francisco is well beyond what most its residents can afford; thus, the competition for existing rental units is fierce.

Finally, San Francisco is an extremely desirable place to live. True, many people left when Northern California’s economy took a turn for the worse. But once they figure out what winter is like in the rest of the country, they’ll be back. And they’ll be looking for a place to live.

Though apartment vacancies edged up and rents softened throughout 2009, San Francisco rentals appear to be stabilizing faster than rentals in other places. In 2008, the average asking price for a one-bedroom unit was $2,350; eight months later, that price was $1,874. Today that same one bedroom apartment is going for $2183 – less than two hundred dollars below its 2008 market peak.

The residential vacancy in San Francisco in 2009 was 4.5% (compared to 4.2% in 2008) – thousands of units were sitting empty. Additionally, many of the 3,000 new units built at the height of the housing boom in 2009 were condominiums in the downtown neighborhoods of Mission Bay and SoMa. These condos are often bank-owned foreclosures that were purchased by investors looking to turn a quick buck on the rental market. But traditionally upscale condo units are among the most difficult to rent. Landlords are looking to sweeten the deal for prospective tenants by offering longer than usual leases at greatly reduced rent, and throwing in that first month’s rent for free.

At the other end of San Francisco rentals, many tenants are hoping to take advantage of San Francisco’s stringent tenant protections by looking for housing in neighborhoods such as the Mission and the Inner Sunset where many of the apartment units were built before 1979. Under municipal law, there is a limit on how much rent in these units can be raised on a yearly basis. Property owners are subject to other limitations as well – for example, they can’t evict their tenants under most circumstances.

These days San Francisco rentals are largely managed by third-party professionals. In a recent New York Times analysis of San Francisco Craigslist postings, over 50% of the listings had been placed by brokers or agents. (The remainder did not identify the poster.)

This profusion of apartment brokers and agents may actually be an unintended consequence of San Francisco’s liberal tenants’ rights laws: Individual landlords just don’t want to deal with potentially troublesome tenants; they are willing to pay a broker’s fee – typically 6% of a year’s rent – in order to benefit from the broker’s comprehensive pre-screening processes and his or her expertise in enforcing lease provisions. Lease violations will often stand up in court as sufficient pretext for removing a troublesome tenant. The rent control ordinances also leave property owners feeling unable to maximize the full benefit of their property value; they believe brokers have the expertise to negotiate that value.

Nob Hill remains the expensive of the San Francisco rentals with one-bedroom apartments renting on average above $3,700 a month. Pacific Heights and the Marina District are a distant second: here a one bedroom apartment will set you back in the vicinity of $2,500 monthly. The least expensive neighborhoods in which to find San Francisco rentals are the Richmond District, the Richmond District and Noe Valley – where average rents are respectively $1500, $1524 and $1686.

As expensive as that sounds, if you want to live in San Francisco renting is still a better deal than buying. Why? Look at any house in a neighborhood where you would like to live. On average, your yearly rent will be 3% of the purchase price while your yearly mortgage will be 6%. You do the math. While home prices continue to fall in San Francisco, it’s still more economical to rent than own.

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