That’s the billion-dollar question for residents and real estate pros alike during the region’s current tech boom, which is generating reams of housing reports that attempt to portray just how expensive it is to live here.
The latest report from Texas-based apartment research company Axiometrics pegged average rents in the San Jose metro area at $2,500 per month as of June, based on a survey of “tens of thousands” of rental properties nationwide.
That figure is higher than the latest $2,321 Santa Clara County average rent estimate from RealFacts, but the implications are clear: Area rents are still rising fast.
The only area that outpaced San Jose’s 9 percent jump in effective rent (or the amount landlords are left with after any concession costs) was the Oakland metro area, which is catching overflow from tech employees who work in San Francisco. The San Jose numbers in conjunction with he Oakland numbers demonstrate how Silicon Valley’s tech boom is changing the entire Bay Area economy.
“Renters are sobbing, and landlords and investors are celebrating,” said Jay Denton, Axiometrics vice president of research, in the new report. “They should be thanking the technology industry for hiring so many workers.”
As I have reported, rapid growth in white-collar tech jobs — coupled with closely related growth in professional services fields and lower-paying service sector jobs — has intensified competition for housing at all income levels. The rental housing market is especially hard-pressed, with dual demand from well-paid tech talent seeking low-maintenance rentals and low- or middle-income residents priced out of home ownership.
Axiometrics estimates that Silicon Valley rents for units of all sizes are up an average of $390 per month since June 2012. The current $2,500 rental range represents an average increase of $235 per month in the last year alone.
What that price inflation means day to day depends on who you are.
Area workers faced with a lack of viable housing options in their price range may overcrowd shared units in the area or attempt long commutes from far-flung exurbs (read more about that here). Some residents, along with housing advocacy groups, are pushing for new developer fees to fund subsidized affordable housing, since existing lower-cost units are badly oversubscribed.
In the development world, the question is how much new housing the frenzied market can support, and how viable it is to get new supply built fast enough to capitalize on the immediate demand.
There are pockets of major rental housing development, like downtown San Jose’s high-rise apartment towers that are in the works, but government regulation and exorbitant land costs continue to inhibit large-scale increases in housing supply. With so much of the new housing coming online concentrated in the luxury market, some developers worry that rental prices could dip as new developments lease up.
About 6,612 units have been delivered to the market in the last 18 months, Axiometrics notes. That number isn’t big enough to accommodate even the new residents moving into Silicon Valley, let along those already here and struggling to find housing. An additional 5,649 units should come online within the next year. The report does not break those numbers down by luxury and non-luxury units.
Still, Mike Kim, chief investment officer of San Francisco’s Simeon Residential Properties, recently told me that he sees Silicon Valley’s housing market evolving in ways that it has not during past tech booms. His company bet on that fact by developing San Jose’s new $149 million, 347-unit Centerra downtown apartment tower.
“There’s definitely a segmentation that’s occurring in Silicon Valley that has not happened in the past,” he said. “Historically in the Valley, you had good and crap. Nothing in between. Now it’s excellent, good and crappy.”
Axiometrics also breaks down rental cost trends into three tiers: Class A properties that command the highest 20 percent of rents, then “cheaper” Class B units and Class C units.
The region’s 5,723 Class A luxury rentals of all sizes were going for an average $3,139 per month in June. For the bulk of Silicon Valley’s rental housing supply, 26,791 Class B units, the average monthly rent is $2,448. The average rent for the region’s 5,009 Class C units was $1,872 last month.