The price of Bay Area rentals and for-sale homes rose sharply last month, by as much as 16 percent in some areas. San Francisco ranked as the second-healthiest housing market in America, according to the real estate site Trulia. Why are prices rising, and how are costs affecting Bay Area residents?

The Rising Price of Housing 7 January,2013forum

Jed Kolko, chief economist for Trulia and author of the new Public Policy Institute of California report, "Business Relocation and Homegrown Jobs"
Carolyn Said, staff writer covering economics and real estate for The San Francisco Chronicle
Rick Turley, president of Coldwell Banker for the San Francisco Bay Area and a real estate agent for 25 years

  • Peter

    According to the Department of Numbers website,
    the number of single-family and condo homes listed for sale in the San Francisco area decreased by 61% from December 31, 2011 to December 31, 2012. Why did selling one’s home become so unpopular suddenly?

  • Frank

    If insufficient numbers of people can afford to live where jobs are, then smart companies will locate themselves in cheaper places, which these days are often not in the Bay Area, and workers will jump at the chance to live and have a stake in a home or community, rather than struggling to pay $2000 per month into the bottomless rent pit. However if these cheaper places are horrible (think: weather in Texas) and people want to have a good life, they may opt for the expensive rental market after all. Smart developers could counter the job exodus by offering affordable micro-condos and packing more people into the nicer places. But that would require imagination.

    Here is a good podcast on this issue:

    • campfiregirl

      Places that are zoned for businesses, particularly large corporations often limit housing construction as well. The South Bay ,for instance,is a huge opportunity to build a wide range of housing types but zoning does not permit or encourage it.

  • karenn

    I run a nonprofit in SF that helps preserve affordable housing for low-moderate income homeowners. The irony is that my staff & I all live in the east bay as we can’t afford housing in SF.

  • TimDoyle

    I am a SRO resident in North Beach. Poor. On social assistance. I am fearful that I will be homeless soon. San Francisco is a Darwinian pool right now.

  • TimDoyle

    My neighbor in a SRO in San Francisco was evicted in a “3 Days Quit or Pay” Eviction act. He is either dead or homeless right now. Is this part of the topic?

  • guest

    Being able to afford the purchase price of housing is one issue. Being able to afford the property tax year after year is another.

  • TimDoyle

    Michael you have read Karenn and Frank’s comment’s can you please read one of mine?

  • campfiregirl

    Regulations are a huge part of the limited supply of housing. This is a factor we can and should change!

  • FayNissenbaum

    Carolyn Saaed, any comment on Mayor Lee giving away our tax money to dotcoms like Zynga to relocate in San Francisco? It would seem like the Mayor is giving away the people’s gold to King Midas who’d move here anyway!
    The City

    • I don’t know anything about tax breaks given to Zynga, but I fully supported the tax breaks given to Twitter (et al) for moving to mid-Market. That change will breathe life into a neighborhood that has embarrassed the city for years and will create hundreds (if not thousands) of permanent jobs. Make no mistake: the city couldn’t have turned that neighborhood around without some sort of investment, so I fully support allowing the market to work itself out.

  • TimDoyle

    No one is talking about Bed Bug Infestations!

  • Chemist150

    I’m glad that this guy mentioned the gap difference in housing cost vs pay compared to other states. People blame prop 13 for not enough tax income but when they sell houses in Indiana for $50k – $300k and collect 3% or even 5% property tax, it does not compare to the amount of money California collects on properties but they still balance their budgets with less money than California and property tax within city limits give you trash collection and you do not pay separately. This state is mismanaged.

  • Colin

    This is the worst news I’ve heard in a while. My wife and I make almost 100k year and it now looks like we’ll never own a home in the bay area. The juice is just not worth the squeeze. Looking forward to leaving.

    • Nathan Kline

      Same here. I would rather not take a loan that will require payments until I am in my 80’s, if I live that long.
      The problem, of course, is that jobs I need are ridiculously concentrated in this area. So, when I look elsewhere, I am almost driven to consider a drastic career change. If only Silicon Valley had the sense to set up shop where the cost of living would allow them to save on labor costs!

  • John Tweed

    The UK managed to eliminate mortgage interest deductions even though there were the same ‘third rail’ arguments there. At lease get rid of it for the absurd 2nd home deductions. Also, compared to the UK, realtor fees are crazy, and also help push up prices with no advantage to anyone except the realtor.

  • Caroline

    We live in Vallejo, my partner has a business on Mare Island and I commute on the ferry to the city. Our first house is totally underwater – to the tune of $300,000 (we paid $410,000 and it is now worth $106,000), but it has a beautiful view of the bay! We just bought another house which sold in 2006 for $560,000 and we just got it for $152K – a beautiful redone victorian, it is crazy! Our shack on the hill is worth nothing and our beautiful home we got for nothing! I am hoping that the low cost in Vallejo will bring in more people to make it cool to live here again. The artists are moving in currently and there is a really good vibe to the city. I suppose my point is MOVE TO VALLEJO! It is totally affordable and a beautiful place to live!

  • Brad

    It should be said that demand in San Francisco is partly driven by those who have become tired of living in the suburbs and are looking for an urban life. I, for one, will gladly pay more to live in the city if it saves me from the suburbs.

    Also, new demand is helping to bring up downtrodden neighborhoods like mid-Market by filling in empty lots and abandoned buildings.

    • TimDoyle

      I concur with this statement

  • Frank

    One problem with the USA is that private ownership of land leads to poor utilization of land, because so much of it ends up hoarded and unused (i.e. the practice of land banking) and under-utilized. If all land were owned by the People instead and rented by companies and families, there would be greater pressure on maximizing use of lots.

    FYI it was economist Henry George who devised this idea based on his experience in San Francisco when it became a boom town.

  • Sam Badger

    San Francisco needs to invest more money in public housing. As a student studying in San Francisco, I cannot afford to live in the city and must commute from my family home in the South Bay. Only a direct, high density and affordable increase in the supply within the city can help to fix that in the long term.

  • david

    I lost my full-time job in 2009. I could n0t find full-time employment but I maintain good credit (800+) as self-employed but have reduced income by 30%. My property value (Silicon Valley) has likely bounced back. Wells Fargo wont modify my mortgage based on income reduction? What happened to the principal reduction option?

    • Nathan Kline

      Why would they reduce your principal? Because you agreed to a loan you couldn’t afford in the event of a period of unemployment? Temporarily reducing the size of your premiums could make sense for them, without hurting anyone else, but reducing the principal would simply encourage everyone to speculate even more, driving prices to even more insane levels.

  • The prices in the Bay Area only make sense if you think Silicon Valley will continue to be the center of technology for decades to come. If 20 years from now several tech centers emerge around the world, the Bay Area will not be so desirable and prices will be closer to other parts of the country.

    • Nathan Kline

      And we know there is no macroeconomic trend at the moment to generate even a 3% GDP growth. The fable that Silicon Valley will always grow and boom is just that…a fable.
      Personal income has been declining steadily over the past 10 years, there is no natural or safe way for this housing market to move forward. It can stay where it’s at based on dreams and speculation alone, but it’ll just make for a harsh landing later on.

  • Chemist150

    I’d be curious to know what the correlation is if any for the places spared from the bust vs. the worst of the busts in relation to mortgages issued based on the federal loan guarantee.

    It seems to me that the federal government is at fault here and not the banks. The banks would not have made the loans if the government had not guaranteed them. Given the banks merely needed to fill out the right paperwork and be guaranteed a profit, it makes perfect business sense to do so. The fact that the banks then bet against the loans show that they would not have made the loans without the guarantee. As long as the guarantee is there, the banks will continue with the risky behavior. Maybe they can’t bet against it but it’s still guaranteed profits for the banks to make risky loans.

  • Matt G

    I’d love to complain about being driven out of San Francisco due to rent prices, but that’s how capitalism works!

    • Frank

      Yes it’s part of the mechanism that keeps the poor poor, no matter how much “progress” happens.

  • “Houses are something you live in.” is quite a bit like “Diamonds are for cutting softer substances.” and “Oil is something you put into your car.” It is somewhat deceptive and leads to the divisions between the classes.

  • Maurine Starkey

    There was just an announcement on your news about food insecurity. I know folks who pay a fortune in rent, who can’t afford to feed themselves. Also, if police, firefighters, doctors and nurses can’t afford to live in the city…what happens during an emergency?

  • Nathan Kline


    Really, is this a normal market? In what plane of reality?

    Let’s clear the air, here. There are only 3 categories of people who like the current market:

    1) The Real Estates industry: Since transaction volume (in $) is what irrigates their pocket books via inflated commissions and fees.

    2) Mortgage lenders: Even though interest rates are low, they received essentially 0%-interest cash from the Federal Reserve and therefore, those jumbo loans are still very profitable to them.

    3) Long-time home owners who feel like they are nurturing gold mines, as they see desperate newcomers struggle to find houses to settle their families.

    All of the categories listed above have a vested interest in claiming the market is going to go up, that the sky is the limit, and “that you’d better buy now before it’s too late!”

    Everybody else is condemned to pay horrible rents or cave in and take on huge mortgages that will put them in debts for periods of 30 or 40 years, often well into their 80’s. (an optimistic proposition)

    Michael, you were in fact right when you accidentally stated that mortgage interest deductions have made the market unaffordable for a lot of people. The fact is that Real Estates market participants know about that law and know full well how it plays out in the calculations of relatively wealthy households that have quite a bit of income tax to offset. Therefore, the mortgage interest deduction drives those households to contract bigger loans in order to minimize their tax burden. In turn, this leads the market towards even more inflated prices, literally shutting out those who are not willing to play that silly game and who would rather crawl under a rock than risk walking away from a severely underwater property.

    Prices are inflated for a lot of reasons:

    1) Population density is already too high.

    2) Foreign investors and speculators with deep pockets bet on further housing bubbles.

    3) Local speculators (flippers) still believe there is a lot of money to be made by applying a 2-week cosmetic treatment to older properties for a quick 10-20% return.

    4) When banks were left with a lot of foreclosed properties on their books, they chose to hold onto them instead of letting the market reach its true equilibrium. Hence, the significant downturn that we have seen has in fact been a far milder version of what it should have been.

    5) A rather constant influx of newcomers who are in the mindset that buying a home is an unquestionable given, here, as they would have in their home state.

    6) IPO millionaires, those lucky few who rang the bell at the right time.

    I could go on and on, but…

    • erictremont

      I agree with much of what you say, but you did not mention the role of draconian land use restrictions in restricting the supply of all types of housing. In the Bay Area’s most desirable communities, getting local government approval to build new housiing is very challenging.

    • jurgispilis

      You should also mention the high number of vacant units and houses. That is because, owners are terrified of tenants.

    • Steve

      Rising home values don’t really help current homeowners get ahead, unless they cash out and move to a less expensive area. They are just staying even with the market. As you say though, that is at least better than being a renter and falling behind.

  • Guest

    Very true, Matt! This pattern of high-priced, low-inventory housing markets (a la Paris, London, Tokyo) are nothing new!

  • fascinero

    The high cost of living in the Bay Area is due in large part to the high level of real estate investment. When nearly 50% of the demand comes from non-owner occupiers, basically wanna-be slum lor…, I mean landlords, rents are going to be abnormally high as greed takes over and the wealthy attempt to impoverish the poor to ever greater degrees.

  • Steve

    Here’s the thing that’s overlooked regarding the mortgage interest deduction:
    It causes real estate prices to go up.
    This negates (or at least greatly diminishes) the savings you get on the interest after you buy.
    It also makes it more difficult for first-time buyers to raise the necessary down payment.
    This is why realtors defend it so strongly- they make their money as a percentage of sales price.

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