Red-hot rent prices show signs of cooling
San Jose rates increased just 2.1 percent from last year, the slowest annual growth since 2011
For BayArea renters struggling to afford apart-ments that keep getting more expensive, the latest numbers could seemtoo good to be true: The region’s runaway rent prices finallymay be starting to level off.
San Jose is looking at the slowest start to the summer rental season in years. Rents in San Francisco are flatlining. And Oakland saw a minuscule increase in rent prices last month.
That’s according to a new study by apartment search website RentCafe, which found the Bay Area is part of a nationwide trend that while rents continue to increase, they’re doing it at a significantly slower pace. Experts said the slowdown suggests that in the near future, renters might finally find relief from the sky-high prices that are forcing people to flee to the Central Valley and beyond in search of cheaper housing.
“Renters are looking at an optimistic start of the rental season,” RentCafe researchers said in the report released Thursday.
The average rent in San Jose last month was $2,692, or 2.1 percent more than at the same time last year, according to the report. That’s the slowest annual growth rate the city has seen since 2011, a major milestone for a region where prices seemed to be climbing ceaselessly. The
average rent in Oakland was $2,617, a 2.5 percent increase from the year before, which marks the second slowest growth rate the city has seen since 2012. The average rent in San Francisco was $3,453, a 0.6 percent increase, and the second-slowest growth rate the city has seen since 2011. San Francisco had a cooling off last year, when rent rates dropped 3.3 percent from May 2016.
John Protopappas, president and CEO of Oaklandbased real estate development company Madison Park Financial Corp., pre- dicts this is the start of a major slowdown in the Bay Area’s rental market. It’s all about supply and demand, he said. In Oakland, 7,000 housing units are under construction, and as those finished units flood themarket, Protopappas expects the city’s rents to drop 20 or 30 percent in the next two or three years.
“It’s going to become a renter’s market instead of a landlord’s market,” he said.
But the broader Bay Area continues to add more jobs than houses, and until that changes, prices won’t drop enough to have a significant impact on residents, said Mathew Reed, policy manager of SV@Home, an organization dedicated to supporting the creation of affordable housing in Silicon Valley.
“I think it’s nice to see us returning to a sane level of increase,” he said, “but we’re so out of whack and so many people are paying such a high proportion of their income already, I don’t see anything in themarket right now that says housing is becoming more affordable.”
Nevertheless, the recent numbers are good news, Reed said. A 2 percent annual increase in rent prices is healthy, as it mirrors the rate of inflation, he said.
Meanwhile, flatlining rents could impact real estate developers with plans for new buildings. As construction costs continue to rise — some say a whop- ping 50 percent in the past five years, largely because of a shortage of workers driving up wages for skilled labor — new buildings won’t be erected if rents don’t keep pace with rising costs.
“It will slow down development until we get back to an equilibrium,” Protopappas said. “But it will take years. In the meantime it’s going to be a renter’s market for a long time.”