2020 has rolled in, with some good news in store for homeowners and renters in the Bay Area. After 7 years of unprecedented gains in property prices, a new reality has dawned: prices are stabilizing. According to recently released reports from Compass real estate group, the median price of homes was largely flat. In the South Bay, prices for houses declined to $1.26 million on average, from $1.33 million. The prices of condos declined from $880,000 to $825,000, largely due to a cooling of Santa Clara County, and other cities in the 9 county Bay Area.
Across the bay, in San Francisco things are different. The median cost of a single-family home last year remained high at $1.6 million, while the median cost of a condominium was $1.24 million. It should be pointed out that these represent increases over the previous year’s prices, but the growth is rather lackluster at 1.6% and 3.3% respectively. Moving further afield, Berkeley and Oakland reported the greatest declines in price at 4% for homes, down to $860,000. Condominium prices remained the same year on year at $620,000.
There are several reasons why prices may be cooling, including the failure of several tech companies, such as Uber and Lyft, the SoftBank and WeWork debacle, and scores of other blunders throughout the year. Zillow has the average San Francisco home price valued at $1,387,263, up 1.7% over the past 1 year, with prices forecast to rise 4.6% this year. The price per square foot in San Francisco is $1090, substantially higher than the multi-area San Francisco-Oakland-Hayward-metro area at a mean price of $500. The average rental price in San Francisco is still exceptionally high at $4382, much higher than the 4-area region with a median price of $3250. The median price for rentals across the United States is $1,590.
Factors Driving Prices Lower
The surge in property prices over time has created an untenable situation for businesses and residents in the Bay Area. Regular wage earners such as baristas, schoolteachers, firemen, policemen, hotel workers, janitors, landscapers et cetera are unable to pay the exorbitant rentals in the San Francisco Bay Area. This means that people cannot afford to live in the counties where they work, leading to greater commute times, less work/life balance, and an untenable rental burden. The Mercury News reported ‘Bay Area home prices fall, hint toward market correction’ in a publication dated December 5, 2019. With falling prices across the 9-county region, forces are at play as the market makes amends.
Government and the private sector are investing heavily in the provision of affordable housing for Bay Area residents. Towards the end of 2019, news broke of Apple’s commitment of $2.5 billion towards affordable housing in California. Google has also invested $50 million in what is known as Housing Trust Silicon Valley Tech Fund, with an additional $1 billion for the San Francisco Bay Area. Google has also allocated an additional $250 million fund for affordable housing in the region. Facebook Inc is also in on the action with a commitment of $1 billion towards affordable housing. While homeownership remains at a multi-year low, the cost of homes in the Bay Area remains astronomically high.
Recently, Palo Alto Mayors discussed the housing crisis in the greater Bay Area. The current mayor, Adrian Fine believes that significant investments in transit and housing are necessary. Officials cite many concerns, notably the green lighting of commercial projects, while everybody else must pick up the slack with housing issues. According to statistics, just 7% of city staff and just 10% of schoolteachers actually live in the city. The issue is that many working people cannot afford to live in places like Palo Alto, let alone pay rental there. Legislation is currently under consideration such as SB 50, and the challenges it presents to lawmakers and communities vis-a-vis housing and commercial activity.
Communities Turn to Local Developers
Many officials are turning to local developers for assistance. While property developers tend to focus on the high-end of the market, there are notable exceptions like Danny Haber. He is the CEO and co-founder of oWOW which offers luxury housing below market price. oWOW developments are currently up and running at various locations around Oakland, notably 674 23rd Street, 316 12 Street, and 1919 Market among others. The company and its projects have the backing of high-level officials such as Lowney Architect, and the former leader of the Black Panther Party, Elaine Brown.
These live/work accommodations are known as adaptable spaces for tenants. The Danny Haber revolutionary project at 674 23rd Street was an instant hit; it was fully leased within 4 weeks of completion. Prior to taking over the building, it was vacant for 5 years. Then, the vertically-integrated company oWOW brought its teams in to remodel the tenement and create luxury-style living below market price. Thanks to a system of prefabricated design known as Magic Walls, construction was fast-tracked off-site, cutting costs for the end users.
As reported in the Danny Haber interview, the MacroUnits have transformed neighborhoods, bringing an eclectic mix of characters to the area. Haber’s projects are proof that there is plenty of opportunity in the Bay Area property market, especially now that prices are cooling across the board. Lots more work remains to be done, but these types of initiatives are evidence that shared success is real success.