A sign showing a two-bedroom, two-bath apartment for rent near Central Park in San Mateo.
With high occupancy rates and stronger demand, rental markets in some of the county's largest cities are starting to heat up.
September marks the first time that some cities, like San Mateo and Redwood City, are seeing higher median monthly rents compared to the previous year, across all property types, according to Zillow data. Both cities’ median rents for last month are about $3,600.
Rent.com data shows that studio apartments in San Mateo saw a 4% annual increase and a 45% increase for two-bedrooms.
Doug Ressler, manager of business intelligence at Yardi Matrix, a real estate intelligence firm, said the market is heating up across several Bay Area counties, including San Mateo.
“The Silicon Valley, Sacramento and San Francisco areas are getting more competitive, and one of the major reasons for that is in the lack of supply,” Ressler said. “Developers are hesitant for a lot of different reasons, including because of costs, which have gone up.”
According to RentCafe, new housing construction has slowed slightly across Santa Clara, San Mateo, San Francisco and Marin counties. The issue is cyclical in nature, as developers have also attributed the lack of new residential development to declining or plateauing rents, as lenders are less inclined to finance such housing if their already-thin profit margins get whittled down further, or evaporate completely. Many residential developers throughout the county have requested extensions on the city approvals, or entitlements, to buy more time and secure financing.
Uncertain outcomes in an election year also affect developer and lending practices. Proposition 33 will go before California voters this November, which would eliminate most of the current, state-level rent control parameters and allow cities to enact their own policies as they see fit.
“Obviously, that is not seen as a positive for developers,” Ressler added.
While rents are increasing and occupancy rates are projected to increase on the Peninsula, according to the RentCafe report, it still doesn’t seem to be pushing more county residents toward homeownership. Home sale prices in San Mateo and Redwood City are $2.05 million and $2.1 million, respectively, per a recent Compass report.
“You will continue to have demand increase, especially in the rental market, because the ability to purchase a home or find a home is still going to be quite expensive. The rent-to-buy window right now obviously favors renters in terms of cost,” Ressler said. “Even though 50 basis points was declared by the [Federal Reserve], that's not enough to invert the curve and that people will all of a sudden see this largesse of new supply of houses get built. “
Ultimately, Ressler added, the strength of the rental market on the Peninsula will be determined not just by how quickly the tech industry bounces back from over a year of continuous layoffs — but also whether in-office mandates ramp up. Like many Bay Area counties, San Mateo has experienced negative population growth for a while but declining more sharply since 2020.
“[Developers] are looking at, ‘Will work from home continue or does that mean that these areas will or should come back in terms of density populations and demand?’” Ressler said.
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(1) comment
Thanks for the article, Alyse DiNapoli, and especially the reasons for why rents are increasing. I’d add that as long as government attempts to burden developers with mandatory this and mandatory that and extracting money from developers for extraneous costs unrelated to housing, the cost of building housing will only increase, leading to less affordability via increased home sales prices, a continued lack of housing, and continuing to pit folks wanting to stay in the area to compete with others for rentals. Until the cycle is broken, expect more of the same.
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