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One of the nation’s priciest market has become even more expensive—and this situation has been exacerbated by a limited inventory that cannot accommodate a growing population.
According to new data released by Paragon Real Estate Group, San Francisco is finding itself in a thorny situation: With a decline in new-home construction during the 1980s and 1990s coupled with anomalies in the existing housing stock has created a complicated market for anyone trying to purchase residential property.
“The housing units built in 1940-1950 were not only much more numerous, but were typically two to three bedroom houses, while since 1980, the units built have generally been one to two bedroom condos and apartments (which makes sense with our changing demographics—more singles and couples, fewer families—but obviously hold fewer people per unit),” stated Paragon’s newly released San Francisco Real Estate Report for February. “And now a big topic in development is building urban ‘micro-units’ of 250- to 350-square feet.”
But while the quantity of housing is a problem, the price tag that goes with these properties is staggering. Paragon’s data found that house and condo median prices during the fourth quarter of 2014 reached record highs of $1,125,000 and $999,250 respectively, while the median price on Tenants-in-Common (TIC) property increased to $829,500. Perhaps not surprisingly, the turnover rate in San Francisco housing is low, which only adds to the city’s housing woes.
“Houses turn over much less often than condos or TICs—i.e., house owners generally live in their homes longer before selling—and with virtually no new houses being built in the city, house sales as a percentage of total sales are declining, but this has also made them the market’s highest-demand, most competitive segment,” said the Paragon report. “Condos now dominate San Francisco home sales and will continue to do so with the many new-condo projects being built. TIC sales are down almost 60 percent from 2007, probably due to financing conditions and changes in condo conversion and tenant eviction laws. The number of listings fell last year, putting additional pressure on the market.”
Several changing factors may also have a significant impact on the San Francisco housing scene: the increased number of luxury condo developments under construction, the new so-called “Airbnb law” that places new requirements and restrictions on those seeking to profit from the short-term rental of residential properties ordinance, and the growing number of people moving to the San Francisco market. The latter concern is especially burdensome, as the city’s population of 850,000 is its highest figure of all time. However, the pace of residential construction is not keeping up at all—while the population grew by 45,000 over the past five years, only 7,500 new housing units were built during this period.
The number of people living in San Francisco is currently at its highest level ever, at approximately 850,000. That's a 45,000-person increase since just 2010, with only 7,500 new housing units built in the same time.