Real Estate Reporter

Home of the whopper

The sky’s the limit for pricing; but a tariff-caused recession could dig a big hole for San Francisco real estate
While condo construction continues across the city, new rental units outpace condo units in the planning pipeline. Photo: Gregory Varnum

When Board of Supervisors President London Breed became Mayor Breed in July, no one could escape hearing that the new mayor grew up in public housing, or that she has been a renter all of her life. She took office and was met by expectations that she will deal with the richest of the rich — people buying and selling homes in the city at astronomical prices — and the poorest of the poor — people sleeping on the streets, unable even to get a spot in an SRO.

The hope is that she can bridge the divide somehow, bringing her knowledge of the difficulties people face on the lower end of the income scales together with her pragmatic business contacts to try to satisfy everyone. That’s a tall order for any mortal. She also now earns a salary (around $330,000) above the estimated income level ($303,000) necessary to afford the median family home in San Francisco. Will she continue to be like the 65 percent of San Francisco households that rent, or will she move into homeownership?

I won’t make you wade through this entire article to get to the forecast — here it is: that median family home price that requires such a high salary is going to continue to rise through the rest of the year and next year, and only dramatic policy changes in City Hall and Sacramento or a major recession will change its trajectory. The latter is more likely.


The drivers of the market are the same as they have been throughout this entire post-Great Recession run-up of prices and scarcity. Though employment figures might surge here and shrink there, the overall truth is that the San Francisco economy remains very strong, and it continues to be driven by the companies paying the high tech salaries that draw new people into the city. Those people require housing and, whether they rent or buy, have the means to pay whatever the market will bear because there simply isn’t enough housing stock available. San Francisco Planning notes that most of the increase in employment in the city “has been driven by growth in workers earning more than $100,000 per year; however, workers earning less than $75,000 continue to be the majority of workers in San Francisco.” Thus, a Thunderdome-like struggle to get or hang onto the scarce housing ensues.

Paragon Real Estate Group noted in July that a decrease in the number of units of housing being put up for sale “has been a critical factor in the upward pressure on prices. . . . As houses have become the scarce resource in the S.F. market, overbidding percentages have gone into the stratosphere (though strategic underpricing has also played a role).” Paragon writes that homes are being “snapped up faster than at any time in the past seven years.”

A study by found that between 2006 and 2016, the number of renter households with children in San Francisco increased by 33 percent; during that same time, the number of homeowning families with children in the city declined by 10 percent. And it’s no surprise why families are becoming increasingly renters and not homeowners here: prices. RentCafe notes that “Single-family home prices increased here twice as fast as rents between 2013 and 2018. In just five years, the median price of a single-family home soared by 80 percent, while the average rents swelled by 39 percent.”

And the people keep on coming. U.S. census data shows that the Bay Area had net increases in population of tens of thousands of people for each year since 2011, ranging from 28,280 last year to 67,247 in 2014, notes Paragon. Paragon also reports that SF Planning has 65,000 housing units in the pipeline at various stages of review, and that “the construction of new rental units continues to outpace new-condo construction in San Francisco, an interesting shift which just began a couple years ago.” Those 65,000 units — which include everything from condos to affordable housing — could have a nice impact on the market, depending on how quickly they exit the pipeline.


We are experiencing one of the longest economic recoveries in American history, but all good things must come to an end. We reported here a couple issues ago that there are a lot of economists predicting that the next recession could strike in 2020. That might happen sooner if the tariffs being pushed by President Trump set off a serious trade war. A late July front-page headline in the Financial Times was not encouraging: “Full-scale trade war looms larger.” There have been some reports already of companies laying off or threatening to lay off people because they rely on imported materials or they export to foreign markets that could be closed to them in retaliation for U.S.-imposed tariffs.

One driver of price-hikes is already showing signs of abating. In some parts of the world, foreign buyers of residential real estate are becoming more scarce. One big cause is new restrictions the Chinese government has put on purchases of overseas real estate, so expect fewer Chinese buyers in the residential and commercial real estate markets; as for Russian oligarchs, recent reports suggest they’re more interested in buying members of Congress than buying San Francisco condos.

Real estate is expensive throughout the Bay Area; it’s not just a San Francisco phenomenon. And though San Francisco might be the most densely populated part of the Bay Area, the factors of an influx of highly paid workers and the refusal of communities to build sufficient housing have created a region-wide housing shortage. The winners continue to be people who bought their homes years ago and now get to retire as millionaires. The losers continue to be the people who don’t own homes, don’t earn sky-high salaries, and who are unable to pay rising rental rates.

Attempts to speed up housing construction have been made in Sacramento, but they are being fought every step of the way by forces worried that the legislation will end up only helping the high-income buyers and developers, further displacing lower-income people and people of color, who have disproportionately been on the losing side of the tug-of-war for available housing. Housing advocates such as State Senator Scott Wiener will continue efforts — like Wiener’s unsuccessful attempt to boost housing near public transit stops, an effort supported by Mayor Breed — but he will be facing the resurgent left wing of his party. I’m not brave enough to hazard a forecast on who will win.


One final note: When the economy and the real estate market go into a downturn — whether that be sooner or later — they will have impacts far beyond a slowdown in new construction or a decrease in pricing. California’s state budget is strongly fueled by taxes from the Bay Area’s zillion-dollar businesses; local budgets also have been supported — and expanded — by taxation of sales of hyper-priced real estate transactions. Republicans are trying to make political hay in November by targeting the 12-cents-per-gallon gas tax passed in Sacramento a while back. That’s small stuff. If the Bay Area’s business and real estate engine stalls, voters will be needing to pony up tens of billions more dollars to make up the shortfall in local and state budgets.

It’s going to be an interesting remainder of the year.


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