San Francisco

Massive Rent Declines in America's Most Expensive Cities Prove, Once Again, That Supply and Demand Is Real

San Francisco, New York City, Boston, and other large metro areas have posted double-digit drops in rent.


The country's priciest cities are seeing massive declines in rents as people who are now free to work remotely and unable to enjoy the typical amenities of urban living decamp for less expensive metros.

Tucked away in this trend is a lesson for cities: Building more housing is the key to solving affordability problems.

San Francisco has also seen the largest price declines. Rents for studio apartments have declined by 31 percent year over year there, according to a new report from Rents for one- and two-bedroom units declined by 24 percent and 20 percent respectively.

"What we're seeing is really the move away from high cost, particularly in urban downtowns, toward the suburbs and toward affordability," said senior economist George Ratiu to the San Francisco Chronicle. The embrace of remote work among tech employers concentrated in the Bay Area and Silicon Valley is why those areas have seen the largest price drops, he told the Chronicle.

Nearby San Mateo and Santa Clara counties have seen price declines of 12 percent for one-bedroom units, and around 10 percent for two-bedroom ones.

It's not just California, either. Other dense urban areas have seen steep price declines as well. King County, Washington (which contains Seattle) has seen rents fall 12 percent for studios and 10 percent for one-bedroom units.

In Manhattan, rents have declined by 15 percent for studios and 10 percent for one-bedroom apartments. Washington, D.C., and Boston both also report double-digit rent drops.

The trend, if not the individual figures, matches reports from other listing websites. A recent report from Apartment List found median rents had declined 20 percent year over year in San Francisco, 12 percent in New York City, and 9 percent in Seattle.

Emily Hamilton, a researcher at George Mason University's Mercatus Center, notes that data for short-term changes in rent prices are notoriously hard to come by, and much of what is available is skewed toward the higher end of the market. Lower-priced units, she says, have likely seen much less significant price declines.

Nevertheless, she says that the massive rent declines in the country's most expensive cities vindicate those who rightly say that supply and demand set housing prices.

"As vacancy rates are rising as a result, landlords are responding by lowering prices or offering incentives like a free month of rent or free parking," Hamilton tells Reason.

Just prior to the spread of the coronavirus and associated lockdowns, projects that would have added tens of thousands of units on vacant land in New York and Boston attracted opposition from housing advocates who worried that new higher-end units would only drive up prices. This summer, one San Francisco supervisor derided activists supporting a small market-rate project in his district as embracing a "twisted 'all housing matters' theory."

One of the chief complaints of opponents of a failed California state bill that would have legalized mid-rise apartments near transit stops and job centers was that it would mostly produce market-rate or "luxury" housing, thus making affordability issues worse.

These same places are now seeing massive price declines as the number of available units grows, and the number of prospective renters shrinks.

That's not necessarily a good thing for cities, since their newfound affordability comes at the expense of jobs. "It would be better from a city government point of view if the population was growing but prices were falling because so many more apartments were being built," says Hamilton.

It should serve as evidence that growing the number of available units, even if they are market-rate units, is crucial to making cities more affordable. That's an important lesson for cities as they prepare to bounce back from the pandemic.

Absent a rash of new construction, the price declines that we've seen over the past year will prove fleeting as people and firms return to cities, and empty units fill up.

That new construction isn't going to happen unless these same cities—and the politicians who govern them—repeal regulations that limit how much new housing can be built, and where it can go.