Will IPOs give Bay Area rents a Lyft?
Tale of two tech cities
The Bay Area battle for bragging rights for the most-tech-related jobs is no contest.
San Jose easily has the largest percentage of tech employees in the nation at 12.1%, more than double sixth-place San Francisco, where 5.8% of residents are tech workers, according to RENTCafe.
But that could change with recent and still-to-come IPOs from Airbnb, Pinterest, Lyft and Uber, all based in San Francisco. Flush with cash, those companies could add employees and increase the demand for housing. Those IPOs will turn everyday employees into millionaires — and likely prompting more competition for apartments and houses in the region.
Paychecks dip, rent climbs in San Jose
Excellent news for apartment owners and homeowners, especially those looking to sell, but a bit worrisome for those who aren’t receiving shares. Bay Area rents are already among the highest in the nation, only surpassed by New York City, according to multiple reports.
But it’s definitely a tale of two cities since 2016.
Paychecks for tech employees dipped 0.8% to $126,200 during the past three years in San Jose, while rent increased 6.9% over the same period to $2,871, according to RENTCafe.
In San Francisco, pay for tech workers improved an impressive 13.9% to $122,600, making the 5.8% increase in rent to $3,084 a little more palatable over the same three-month period.
San Francisco has also enjoyed more growth in tech employees than nearby San Jose since 2016: 19.5% vs. 16.6%. And the tech job-growth may continue with the recent IPOs.
Photo of San Francisco houses by Irina Kosareva/Shutterstock
High home prices hurt rental returns
Buying a single-family home and becoming a landlord has almost always been a bit risky, from choosing good tenants who care for the home and pay the rent on time to solid annual gross rental yields.
In California, it’s a lot tougher, especially with fast-rising home prices in recent years that can put the squeeze on profit margins, according to ATTOM Data Solutions.
Nationwide, the annual gross rental yield — rental income divided by the purchase price — was 8.8% during the first quarter of the year, slightly higher than the 8.7% for the same three-month period in 2018.
Tulare County — Visalia, Tulare and Porterville – had the largest annual gross rental yield at 8% in the state, thanks mostly to a median-home price of $207,500.
Higher-priced California counties had much-lower returns, from 3.4% in San Mateo County to 5.6% in San Diego County. In short, monthly rents failed to offset the purchase price, at least compared to the national average.
Now, several California counties had some of the largest percentage of annual rental yield gains in the nation, but the figures can easily be skewed. For example, a one-year increase in gross rental yield from 4% to 5% would translate into a 25% jump, impressive on paper but not necessarily as impactful in the pocketbook.
“Buying single-family homes to rent them out is a better deal for investors so far this year than it was in the same time in 2018, as profit margins are rising in a majority of counties across the United States,” says Todd Teta, chief product officer at ATTOM Data Solutions. “Last year, investors were seeing returns drop in three-quarters of the counties that were analyzed. So far this year, those margins are up in six out of every 10 counties analyzed. But despite the generally rosier picture, profits vary widely and investing in the single-family home rental market is not always a great move.”
However, it should be noted that the annual gross rental yield looks strictly at rent compared to the purchase price. Property owners can benefit from depreciation and other tax deductions, depending on their income.
Click below to see how your county fared.
Photo of cottage for rent by Monkey Business Images/Shutterstock
More cities complying with state housing supply law
California Gov. Gavin Newsom’s get-tough approach to cities failing to comply with the state’s housing law is apparently working, according to a new report.
Soon after Newsom became governor, the state filed a lawsuit against Huntington Beach, claiming the beach city in Orange County was not complying with the Housing Element, which aims to provide housing for low-income residents. The action was a warning shot to the 47 cities and counties without a state-approved housing plan.
In February, Newsom followed with a meeting with mayors representing cities not complying with the state’s housing supply law. The attention-getting lawsuit coupled with the meeting are definitely having an impact.
Three cities — Clovis, Orange Cove and Soledad — are now in compliance, while Fillmore has submitted a plan for final review.
Fourteen other communities, from Covina and Pomona to Pismo Beach and Lake County, have submitted drafts towards compliance, according to the California Department of Housing and Community Development.
“Strong local planning is key to building a California for all, and the progress thus far is encouraging,” says Ben Metcalf, director of the Department of Housing and Community Development. “We are seeing meaningful efforts by cities and counties that weren’t in compliance to get back on-track and plan to meet the housing needs in their communities.”
Photo of Gov. Gavin Newsom by Karl-Sonnenberg/Shutterstock