Apartment construction hits five-year high in Bay Area
Matrix said the rebound of the residential rental market has sparked production across the country. Some of the increase is also due to construction projects planned for 2020 but delayed by the pandemic. “It looks like the market is resurging, as far as transitioning from the pandemic,” he said.
The Bay Area has lagged in construction of new apartment complexes, even as the Silicon Valley boom has attracted new workers and ramped up demand for rentals. The squeeze has pushed rents to the highest in the U.S., punishing many lower-income workers struggling with the economic upheaval and health crises created by the COVID-19 pandemic.
About 70% of the new Bay Area apartments are luxury or a notch below, Ressler said. Construction of new affordable housing units has been limited, he said, and largely done by nonprofit developers competing for scarce government subsidies.
Oakland led the burst of new Bay Area apartments, with the city projected to add 3,168, followed by San Jose (2,175), Mountain View (1,714), San Francisco (1,521), Fremont (1,185) and Milpitas (717), according to the analysis.
The busiest construction sites for multifamily projects are in two states popular with ex-californians: Texas and Arizona. The Dallas-fort Worth metro led the nation for the fourth straight year, on track to add 21,000 apartments this year. The metro area also landed the headquarters of the formerly San Francisco-based Charles Schwab.
Phoenix is projected to add nearly 16,000 units this year, about 17% more than the combined total of the Bay Area despite having a smaller population. Also topping the Bay Area: New York City, Houston and Los Angeles.
The San Francisco and San Jose metros individually fall behind Austin, Texas; Atlanta; Charlotte, North Carolina; Miami; Minneapolis; and Orlando for new construction.
“The apartment market in some sense hit pause during the pandemic,” said Wells Fargo economist Mark Vitner. But in recent months, he said, “demand rebounded pretty quickly.”
Vitner said news of the Bay Area’s demise is premature. The region still serves as the world’s innovation hub, and eventually the talented workforce will return to offices. In coming years, he added, “there’s still going to be a lot of jobs created in the Bay Area.”
Bay Area demand for apartments still outpaces supply, with urban rents climbing toward pre-pandemic levels in most places. The median price for a twobedroom apartment in San Jose hit $2,720 this month, according to listing site Zumper. A two-bedroom in San Francisco rents for $3,830, and in Oakland, $2,600.
Yardi Matrix forecasts Bay Area rents to rise between 5% and 10% during the next 12 months, with steepest increases in San Francisco. Apartment construction in parts of the region could pick up, but Ressler said other regions are simply easier places for developers to build.
In cities in the Southwest, he said, “you can build faster and cheaper.”