No San Francisco neighborhood has so squarely positioned itself at the epicenter of opposition to rising housing costs than the Mission District. Of course, housing un-affordability is but one of many rapid changes in the neighborhood, and seeking legislative action is but one response (sidebar: remember when protestors were blocking tech shuttles?) — and median home prices have soared 76% citywide since 2011! For now, let’s take a focused look at some of the real estate sales dynamics in the Mission.
August 2007, at the peak pre-recession height of local real estate, a TIC at 901 Guerrero Street (below) sold for $955,000. The 3-bed and 1.5-bath Edwardian was purchased for 12.5% more that its list price and in 26 days on the market.
Earlier this year, in February 2015, I represented the buyer of 901 Guerrero Street sold for $1,650,000. This time, the property returned favorable to the market with a fresh coat of paint, a successful condo-conversion on the record, and convenient proximity to “every tech bus.” The winning bid (of course there were competing offers!) after only eight days on the market came in at 18% over asking. The San Francisco Chronicle even wrote about it.
Given that 901 Guerrero did have a significant value-adding improvement between 2007 and 2015, consider still that its 2015 price is nearly 75% higher than at the previous peak. It’s not uncommon for properties to be improved from one sale to the next, and it makes sense that those properties will sell for higher prices, all else equal. Couple that with record-low inventory and cash investors, and now not even techies (let alone teachers) can compete as homebuyers. Since 901 Guerrero Street sold, I’ve seen comparable properties in the neighborhood sell for even higher. What’s a city like San Francisco with its economy supercharged by the high-tech boom to do?
There appears to be a “try everything” approach in the works for the Mission.
First, a ballot initiative calling for an 18-month moratorium on new market-rate residential developments in the Mission has been approved for the November 2015 ballot. If passed, the effect of the moratorium on neighborhood home prices can be debated. Because the overwhelming majority of housing in the Mission is market-rate which is favored by homebuyers, constraining supply could drive prices of existing homes higher. Alternately, negative attitudes toward an influx of affordable housing could lead residents to leave for other neighborhoods and influence homebuyers to buy elsewhere, ultimately hurting market-rate resale values.
Second, the city is feeling pressure to build more affordable housing units right now. Such developments, like 490 South Van Ness at 16th Street, are permanently reserved for low-income, median-income and moderate-income residents. Below Market Rate housing is purchased for a fraction of market value– not a single unit has sold in the Mission since March 2014 (and a 2-bedroom BMR condo in the Inner Mission is listed right now for just under $450,000). Plus, projects like these can take a year or more to construct once ground is broken, meanwhile the price of affordable housing continues to rise with $15 minimum wage.
Lastly, flood the market with new housing units of all kinds to help meet demand and stabilize prices as quickly as possible. There are 26 residential developments planned for the Mission and a few have begun construction (see the entire pipeline of residential projects in San Francisco here). Still, the pace of new units coming to the market pales in comparison to the city’s growth of employed residents (yes, people can afford to relocate to San Francisco even with housing costs as they are). Some sites available in the Mission could be bought by the city for affordable housing, and the proposed moratorium would give it enough time to organize and fund the investment.
A 2015 Yale School of Management survey of recent home buyers found that a quarter of San Francisco respondents has the extravagant expectation for annual home price increases of 10% or more annually for the next 10 years. Although more likely be closer to 5%, it could happen. In 20+ years working locally in real estate, I’ve learned to never underestimate the voracity of the San Francisco market. I’m of the opinion San Francisco median price trends are headed the direction of Tokyo, Sydney and London toward $3,000 per square foot. Before we get there, though, we may find ourselves asking sooner rather than later: When does an affordable housing unit cost a million dollars?