San Francisco, a small city of approximately seven by seven miles, continuously ranks among the most expensive residential real estate markets in the United States and globally.
The city is one of the top destinations in the world for many reasons. Its unique characteristics such as natural beauty, eclectic Victorian and modern architecture, bustling entertainment and restaurant scenes as well as a diverse cultural mix attract tourists and new residents. San Francisco is the world’s capital for high-tech, biotechnology and medical research industries and is also a principal banking and finance center. It is home to the University of California, San Francisco (dedicated to graduate education in health and biomedical sciences), University of California, Hastings College of the Law, San Francisco State University, the City College of San Francisco and the University of San Francisco. The nearby renowned Stanford University and University of California, Berkeley add to the picture. These components make the city a magnet for smart, educated and ambitious people from all over the world who are willing to pay a premium to live here.
Several more factors contribute to the competitiveness of the city’s real estate market.
For the past several years, San Francisco’s population was increasing by approximately 10,000 new residents annually with new home construction not even remotely matching the increased demand. While new construction is booming again today, it is generally limited to the very expensive, luxury projects with significant number of buyers being wealthy individuals (often from overseas) purchasing second or third homes or units as investments.
San Francisco’s historically low unemployment combined with impressive new employment growth with many jobs being very well paid also affect the market. The so-called “Google bus” phenomenon with many people working in Silicon Valley but preferring to live in the city also plays its role. In addition, a large number of newly wealthy individuals have been created in the Bay area as a result of IPOs, company sales and stock options.
The city’s extremely high rents constantly place San Francisco among the most expensive (if not the most expensive) rental markets in the country (see, for instance, https://www.zumper.com/blog/2015/09/zumper-national-rent-report-september-2015/) which incentivizes home ownership with its multiple tax benefits and equity accrual. At the same time, existing homeowners often prefer to hold on to their properties instead of selling as they can receive substantial income from renting (Airbnb’s rent-to-tourists scenario is a contributing factor as well) with an option to return to their rapidly appreciating property when needed. This, combined with the fact that almost two thirds of San Francisco’s housing is in rental units (much of it under rent control and often not available for owner occupancy), further depresses the supply of new listings.
Non-San Francisco specific factors such as a surging stock market creating new and additional wealth as well as historically low interest rates increasing the affordability of housing further affect the situation.
This being said, real estate and financial markets are cyclical and the aforementioned factors do not guarantee an ever-appreciating housing. However, these factors are fundamental realities underpinning the city’s real estate market at the moment.
Today, purchasing a home in San Francisco requires deep knowledge of the local housing market as well as professional expertise. Rapid appreciation, neighborhood developments, complex transactional documents, landlord-tenant laws as well as other factors specific to the city’s housing stock make buying or selling a home here a challenging task at best. The assistance of a trusted real estate agent who exhibits the utmost degree of care and professionalism is instrumental in meeting clients’ high expectations and goals.