dropped 6.4 percent in 2003 to an average of $1,284, RealFacts said. Since peaking at $1,951 in early 2001, average apartment rents in Silicon Valley have plummeted by 34 percent, generating $8,000 in annual savings for renters.
In the three-county San Francisco metropolitan area, apartment rents dipped by another 4.8 percent in 2003 to an average of $1,544. San Francisco metro rents have fallen by nearly $500 per month during the past three years.
Even with the steady erosion, the average price for a San Francisco apartment remains the most expensive in the West, remaining well ahead of the Los Angeles average of $1,346. The West’s lowest apartment rents are in Tucson, Ariz., at a year-end average of $614.
The stagnant rental market largely reflects a feeble job market, said Caroline Latham, RealFacts’ chief executive.
Although the overall economy recently has been expanding at an impressive clip, the recovery still hasn’t spurred employers to hire substantially more workers — conditions that make it more difficult for landlords to find renters who can afford their own apartments.
“Job growth and apartment demand are pretty closely correlated,” Latham said. “It’s turning into a much slower recovery than we had hoped for. It looks like it is going to take more time than we thought for things to stabilize.”
Apartment demand in recent years also has tapered off as a sharp decline in interest rates made it easier for more longtime renters to qualify for mortgages and buy their first homes.
While the conditions are saving renters money, they are also discouraging developers and lenders from pursuing new apartment construction — a phenomenon that could diminish the future supply of desirable housing. Latham predicted it will take sustained annual rent increases of 4 percent to 5 percent to encourage more building.
Landlords may gain greater pricing power in 2004 if vacancy rates continue to decline, as they did last year in 12 of the 19 surveyed markets. A market vacancy rate of 5 percent or less generally gives landlords the leverage to demand higher rents.
All four of Southern California’s metro areas have had apartment vacancy rates of less than 5 percent for a long stretch, Latham said. The vacancy rates in the San Francisco and Las Vegas markets also dipped below 5 percent during the final three months of 2003 — an indicator that rents in those markets may be ready to surge.
Originally published in the Santa Monica Daily Press print edition on January 24, 2004. Read the original PDF.