San Jose rental market sees unusual slowdown

While many places have seen rents creep up over the last 12 months, San Jose is the only large city in the country where tenants are paying slightly less than they were a year ago.

That’s according to a new report from Rent Cafe, which found that while the overall rental market is seeing a rare slowdown across the nation, two-thirds of the largest Bay Area cities saw annual rents rise between 1 and more than 7 percent through the end of 2019. Just three markets — Richmond, Petaluma and San Jose — saw drops throughout 2019. At the end of 2019, renters in San Jose were paying an average of $2,685, about $32 per month less than the previous year, while those in Richmond and Petaluma saw even more significant declines in rent.

The report looks only at market-rate multifamily properties with at least 50 units, so it doesn’t account for rents in smaller complexes or subsidized affordable housing. It also doesn’t look at the number of bedrooms in a unit.

“The devil is in the details,” said Doug Ressler, manager of business intelligence at Yardi Matrix, which provides data for Rent Cafe’s reports.

While rents on the periphery of San Jose may have gone down slightly, Ressler said, the downtown core “has gone gangbusters.”

“People are seeking different alternatives” to minimize prices, Ressler said, like tiny apartment units.

Anil Babbar with the California Apartment Association attributed the slight decrease to new housing in the area.

“However, there remains a huge unmet demand for housing which cannot be addressed if additional barriers to housing are created,” Babbar wrote in an email. “Our state legislature has implemented some of the strongest statewide tenant protection, but now it’s time for us to tackle the real cause of our housing crisis — the chronic shortage of units.”

In Oakland, rent climbed 5.5 percent between the end of 2018 and the close of 2019 to $2,908. In San Francisco, which remains one of the most expensive markets in the entire nine-county Bay Area, rents climbed 2.1 percent to $3,688. Napa, in the North Bay, saw the largest growth of the 44 Bay Area cities studied, with a 7.2 percent increase in rent to $2,225.

Still, even as rents ticked up locally, they generally did so at a slower pace than in the past. At $2,769, the average rent in the Bay Area grew just 1.2 percent over the last year, the slowest year over year growth in more than two and a half years.

According to Ressler, a major slowdown isn’t likely in a region home to some of the wealthiest tech companies in the world and a diverse economy.

“I think the Bay Area, in terms of the center core, has always and will continue to be strong,” Ressler said.

Joining San Francisco on the “most expensive” list at the end of 2019 were Redwood City, Menlo Park, Palo Alto and Cupertino. The average rent in Menlo Park, where the Facebook headquarters is located, was an eye-popping $4,317. (For comparison, the average monthly rent in Manhattan was $4,211.)

Antioch had the most affordable rents, at $1,779, followed closely by Vallejo, Fairfield, Vacaville and Pittsburg — all under $2,000. Still, the market in Vallejo appears to be shifting. The city saw the highest monthly rent increase in December. Pleasanton, Fremont and San Ramon saw the next highest monthly increases.

Even with a slower growth in rent than across the country, where rents rose about 3 percent over the last year, the Bay Area is still much more expensive than elsewhere. Nationally, the average rent at the end of 2019 was $1,474, about $43 more per month than in December 2018. Between 2017 and 2018, rents went up about $45. According to Rent Cafe, “the wind down comes after a decade of thriving apartment construction in which over 2.4 million units were delivered across the U.S.”

Still, California and particularly the Bay Area are not adding homes fast enough to meet demand. Gov. Newsom has set a goal of adding 3.5 million homes in the Golden State by 2025 — a figure analysts have called ambitious but unrealistic, particularly with a number of wealthy suburbs balking at proposed housing developments they argue would add too much density.

“Our elected representatives at the state and local level must come together to deliver a solution that will address community opposition to housing, stop the baseless challenges that prevent housing from being built, and incentivize the development of multifamily housing close to where people work,” Babbar said.

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Coronavirus: Here’s what you need to know about California’s eviction protections The state also recently enacted a law meant to cap rent increases at 5 percent plus inflation, which tenant advocacy groups pushed for as a way to limit the displacement of lower-income residents struggling to keep a foothold in California.

But Ressler isn’t convinced the caps will have a major effect in the Bay Area, pointing out that few places have seen such significant rent hikes.

“I think,” he said, “it’s going to have minimal impact.”

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