The Wall Street Journal and other mainstream financial news outlets are now caught up in reporting that a fairly serious crash is going on in the rental markets in New York City, San Francisco and San Jose. New York is being impacted to the tune of a 20% downturn in rentals even as rents go down or incentives to rent (like free rent for a up to six weeks) go up.
Ken Rosen, chairman of the Fisher Center of Real Estate and Urban Economics at UC Berkeley says, “San Francisco and New York are leading the way in the downturn. People are going to be surprised that this is happening but they shouldn’t be. It’s been too far, too fast.”
What’s happening is that there are so many rental units coming on the market in a kind of perfect storm of supply glut. The rental market in these big cities has been in a long boom. Seven million new renter units have been built nationwide since the foreclosure crisis in 2006-7 plus a trend toward urban living. The home ownership rate declined to a 51-year bottom.
In San Francisco there’s been a one-two punch of a reduced job availability in the middle and upper class ranges and a huge jump in multi-unit housing coming on the market. By the end of 2018 there will be 6,500 more apartments to fill with tenants. New York is projected to have 42,000 new units on tap in that same period. San Francisco, Oakland and San Jose are seeing a 76% surge in new apartment units in 2016. One of the results is generous incentives offered by luxury and semi luxury towers to get people to move in—from giving away free bikes to four weeks of free rent or $1,000 discounts for renters saddled up with tech companies like Apple. And some rent prices are coming down in the luxury level class.