Once upon a time, I saw a list of America’s Most Expensive Big Cities to Live In (might have come from Fortune’s website). I felt a great shock to discover that San Francisco had dropped to #18 on the list; traditionally, we rank in the top 3, and sometimes we even give New York City a hard fight.
The reason, believe it or not: rents had fallen drastically.
This “once upon a time” year was 2004. Thanks to the blessings of the Adjustable Rate Mortgage, people all across America gave up their rentals and moved into their first condos or homes, shoddily built in instant suburbs in the warmer states. San Francisco emptied out for the second time in half a decade; after the “dot-bomb” circa 2000, the suddenly unemployed tech workers in their 20s had to leave their first condos or homes, shoddily built in instant suburbs in the warmer states, and move back home to their parents’ basements.
For the first time in memory, rental prices crashed. For the first time in memory, San Francisco housing costs became comparatively reasonable.
Of course, I mean “crashed” and “reasonable” in a very relative sense of the words. $1,000 in most parts of America will pay the mortgage on a decent sized house, with enough left over for some of the other bills as well. In the San Francisco of 2004, $1,000 paid the rent on an acceptable one bedroom in many of the city’s neighborhoods (but by no means all of them).
I decided that the time for an upgrade in my living conditions had come. I had established a zero-debt lifestyle (still have zero debt, even today), I did not live in the greatest of places, I could afford an upgrade. My goal: a decent one-bedroom in a decent neighborhood with decent public transportatoin. Maximum rent: $1,000. All of my friends and co-workers told me that I could buy a condo, or even a house, heck, maybe I could make good money “flipping” houses. Millions of Americans were moving into their first homes that they owned; why not me?
This is a good time for me to state that I know nothing about real estate, and to restate that I am not an expert on economics, but I shunned everyone’s well-intentioned advice. Three things bothered me:
- Reality shows about real estate had become cable television’s latest vogue;
- Many friends had gotten real estate licenses, and while they are good people, they had no business getting into that business;
- Flipping real estate looked like tulip mania to my ignorant eyes and I didn’t want to end up holding the bulb, as it were.
So I looked for rentals in my home town. I used many sources of rental listings, including the Sunday edition of the San Francisco Chronicle. As I searched over the weeks and months, the number of column inches devoted to sub-$1,000 housing kept growing.
I’m still happy with the result. Whenever I host a dinner, someone who has not seen my home before will ask, “Vonn, I don’t mean to be rude, but what do you pay in rent?” and will be surprised by the answer. The Sunday after I moved into my new apartment, I checked the want ads in the Chronicle for column inches devoted to sub-$1,000 rentals; a glutton for punishment, I wanted to see how much better I could have done by waiting. To my surprise, they had shrunk from the Sunday before. In fact, they kept on shrinking. I had rented my apartment at the exact bottom of the crash in rental prices in San Francisco.
You see, the real estate bust came a little early to the American West.
Thanks to the curse of the Adjustable Rate Mortgage, millions of Americans discovered that they could no longer afford to afford their new homes, lost their homes, and had to move back into rentals. In simple English, demand went back up, and so did the rents. Today, with the second dot-com boom (oh, but things are different this time!), a new generation of young tech workers have swarmed into San Francisco, driving up rents to an average of over $2,700 for a two-bedroom, a new San Francisco record, I think. I could be wrong.
That is why you can look in almost any direction from almost any point in the city today and see construction cranes, even when you don’t look for them. I don’t know for certain if the city planners know how many apartments are going up in San Francisco; I’m sure more units were approved today, and more will be approved tomorrow. With such a massive influx of housing, you might think that prices will fall, but demand remains so great that we shall consider ourselves lucky if we reach a state of equilibrium. They say things are different today, just as they always have. I hope my hometown will retain its oddball character, allowing me to live in a city where I don’t stand out, and I hope that we reach a point where long-time residents of San Franciso aren’t forced to move out to make way for people with more money.
And I sure hope it doesn’t require another economic fiasco to bring the rents back down to earth.
Vonn Scott Bair