High-tech bust drops Silicon Valley rents by 22 percent

By Michael Liedtke, The Associated Press
Friday January 18, 2002

SAN FRANCISCO — Hammered by a high-tech bust that shrank incomes and lengthened unemployment lines, Silicon Valley apartment rents dropped 22 percent during 2001, the biggest change in the West, according to a real estate study obtained Thursday by The Associated Press. 

The average monthly rent for an apartment in Santa Clara County — the Silicon Valley’s heart — stood at $1,507 in the fourth quarter, down from $1,935 a year earlier, according to RealFacts, a Novato-based firm that surveyed 6,000 apartment complexes in 19 major markets west of the Mississippi River. 

The San Francisco Bay area was the only major Western market where average rents fell in 2001, although the increases weren’t significant in most other regions, according to the study. 

RealFacts said average rents in 2001 fluctuated by less than 4 percent in every major market outside California except Seattle and Oklahoma City, where rents climbed by 4.1 percent and 4.5 percent, respectively. 

The about-face in Santa Clara County’s apartment rents — adding up to an average annual savings of $5,136 in housing costs — illustrates the severity of a high-tech downturn that has trimmed the paychecks of many Silicon Valley workers and left a growing number without jobs. 

The fallout also depressed rents in two other tech-driven markets — the San Francisco metropolitan area, where average monthly rents fell to $1,738, down 15 percent from the prior year, and the Oakland metropolitan area, where rents dropped to $1,269, down 8 percent. 

Even with four consecutive quarters of declining rents, the three-county San Francisco metro area remains by far the most expensive market in the West, RealFacts said. Santa Clara County and the two-county Oakland metro area are the next most expensive. 

Los Angeles County, where 2001 rents rose 4 percent to $1,220 per month, is the West’s most expensive market outside the San Francisco Bay area, RealFacts said. 

The Sacramento metropolitan area — home to California’s original Gold Rush in the 19th century — emerged as the West’s hottest rental market during 2001. Rents in the three-county market located 90 miles east of San Francisco averaged $843 per month in the fourth quarter, a 10 percent increase from $769 in the prior year. 

The next-strongest market was at the other end of California, Riverside and San Bernardino counties, where fourth-quarter rents averaged $831 per month, a 7.4 percent increase from the prior year. 

Rents typically move in inverse direction of the unemployment rate — a pattern holding true in the San Francisco Bay area, where the high-tech industry accounts for 11 percent of the region’s nonfarm jobs and nearly one-third of the wages, according to a Federal Reserve Bank study. 

When the high-tech industry’s fortunes were soaring in 2000, just about everyone who wanted a job in the Silicon Valley had one and demand for housing was at its peak, enabling landlords to demand a premium price for a place to live. 

In December 2000, the unemployment rate in Santa Clara County was just 1.3 percent, according to state statistics. A year later, Santa Clara County’s unemployment stood at 6.1 percent, translating into an additional 48,100 people looking for work. 

The meltdown is driving many renters out of the area, with some fleeing to less expensive markets such as the Sacramento metro area, where December’s unemployment rate of 4.1 percent remained unchanged from the prior year. 

The apartment vacancy rate in Santa Clara County rose to 7.2 percent in the fourth quarter, up from 1.5 percent in the prior year, RealFacts said. Meanwhile, Sacramento’s apartment vacancy rate was 4.4 percent in the fourth quarter, up from 2.9 percent in the prior year. 

A vacancy rate of 5 percent or less usually gives landlords the leverage to raise rents, RealFacts said. 

With vacancy rates rising, Silicon Valley rents are falling at an accelerating rate. Santa Clara County’s average rent fell 10.6 percent from Sept. 30 to Dec. 31 — the sharpest three-month decline during the 12 years that RealFacts has been tracking that market. 

San Francisco Bay area landlords still collect far more money than they did a few years ago, when a proliferation of free-spending Internet start-ups injected billions of dollars into the local economy. In 1995, Santa Clara County rents averaged $906 per month and the San Francisco metro area averaged $972, RealFacts said. 


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