Katherine Case and Andrew Moore hope their third attempt to move to Berkeley is the charm. In 1999 the housing crunch forced them to Lake Merritt and in 2001 to Richmond in their quest for affordable housing.
“Before it was ridiculous. There wasn’t a one-bedroom for under a thousand dollars,” said Case, scanning apartment listings at Berkeley-based rental service eHousing.
This year, the couple might be in luck. Among the company’s 644 Berkeley listings—up three-fold from two years ago—are nearly a dozen one-bedrooms under $800.
“That would have been impossible two years ago,” said eHousing President Davin Wong. “Now $800 can get you a one-bedroom and it’s not necessarily by the Bayer Warehouse [in West Berkeley].”
The low prices signify what landlords, tenants and rental professionals say is a 180-degree turnaround in the local rental market since prices peaked in 2001.
In 1998 and 1999 waves of tech boom transplants coupled with the elimination of rent control on vacant units sent shock waves through Berkeley’s rental housing market, catapulting prices for vacant units more than 40 percent in three years.
Now, according to figures compiled by UC Berkeley rental service Cal Rentals, Berkeley rents this year have sunk more than 10 percent to 2000 levels. The drop is not as big as in nearby cities, but a sea change from a few years ago when an open house could attract a line of renters outside the door all scribbling down their references in hopes they would be the chosen ones.
In June the average Berkeley studio rented for about $850, down from $1,000 in June 2001, according to Cal Rentals. One-bedrooms dropped $220 to $1,130; two-bedrooms dropped $180 to $1,580; and three-bedroom houses fell $300 to $2,400.
“The rental market is the best for tenants that I have ever seen,” said Cal Rentals Director Becky White, who noted that many landlords were pricing rentals well below the recorded averages. “I thought I’d never see the day when a two-bedroom apartment in Berkeley would go for $1200.”
The driving force behind the plunge, experts agree, is the retreat of the tech boom transplants. The loss of young workers flocking to Berkeley along with new student and residential housing and a static student population have left landlords—who rushed to put dormant units on the market during the boom—awash in vacancies.
According to the Berkeley Property Owners Association, the average Berkeley landlord owns six apartment units. Recently, however, large developers—led by Panoramic Interests—have started building large apartment complexes downtown and along major transit corridors.
Since 1998, Panoramic Interests has built four buildings, adding 239 one- and two-bedroom apartments to the city’s housing stock. The firm plans to complete three more complexes downtown next year, adding an additional 177 apartment units.
Panoramic Interests Chairman Patrick Kennedy said he had only seven vacancies, but was unsure what the market what the market would bear when his next wave of development hits the market next August.
“That’s when I’ll sweat the big drop,” he said.
The abundance of options means tenants now have the hammer in dealing with their landlords. Wong said tenants are demanding rent reductions to stay at their homes and will shop around for the best deal.
“Two years ago if you were offered a place, you’d have better biked over with the rent check right away,” said Wong. “Now landlords are competing against each other.”
Despite improved negotiating leverage and a number of desperate landlords offering bargains, Berkeley prices, compared to other East Bay cities, remain stubbornly high.
Oakland’s Lake Merritt neighborhood saw prices leap almost as high as Berkeley’s during the boom, but in the bust they have fallen quicker.
According to Berkeley-based rental service Homefinders, in the last three months the average Lake Merritt studio rented for $742; one-bedroom $955; two-bedroom $1,317 and three-bedroom $1,837.
Berkeley Rent Board Executive Director Jay Kelekian attributes the price gap to Berkeley’s reputation as a safe and progressive community with many charming homes, making the city attractive to tenants even in a slow economy.
Property owners don’t discount Kelekian’s assumption, but they say the city’s contentious history of rent control has had the psychological effect of keeping some landlords from dropping rents down to the market rate.
“In Berkeley owners are far less inclined to reduce rents than they are in Oakland,” said Wayne Rowland, president of the Rental Housing Association of Northern Alameda.
Rowland said that even though Oakland voters last year barred landlords from evicting tenants without just cause—bringing the city’s rent control laws closer in line with Berkeley’s—Oakland landlords were more willing to cut rents because they weren’t traumatized by a long history of battling with a rent board they view as hostile.
Since Berkeley instituted rent control in 1980, landlords have complained that—except for a few years when they controlled the popularly elected board—the Rent Board has favored tenants, locking them into antiquated rents for as long as they stayed in their apartment.
Owners bristled last October when the Rent Board voted to deny them a rent increase for this year, and the two sides have tussled in court previously over permissible rent hikes.
Now many say they are holding out, fearing that if they drop prices and the market goes back up, they will be stuck with below-market rents until the unit is again vacated.
“I don’t know how Berkeley landlords manage to stick it out with vacancies month after month, said Dana Goodell at Homefinders. “They absolutely don’t want to rent it at a lower rent if the market is going back up so they often think in terms of 10 or 20 years.” She added that for some landlords the decision seemed based more on emotion than the state of the market.
Kelekian insisted that under rent control, even landlords who have long-term tenants are guaranteed a profit on the unit, and that if they can prove they are losing money they can petition the Rent Board for a rent increase. “They want a windfall on the windfall,” he said.
Berkeley Property Owner Association President Michael Wilson said many landlord holdouts were following simple mathematics. “If you lower rent $100 just for a year, that makes sense. But that loss begins to compound itself over time and you’re locked into the lowest rent of the worst market forever.”
Kelekian second-guessed the landlord’s logic, noting about 25 percent of rental units turnover every year, and that by keeping units vacant and denying themselves rental income, they stand to lose more than if they acquiesce to market rates. “I’d like to hear their math because I don’t understand it, Kelekian said. “What they’re saying is that the market isn’t good enough.”
Not all Berkeley landlords can afford to wait for the next boom. For small-time owners who bought their property within the past few years and must pay hefty mortgages or who otherwise need a steady flow of rental income, Wilson said they feel more pressure to drop rents until they find a taker.
“There’s an incredible disparity in rents right now,” said White, noting that two-bedroom apartments in the same neighborhoods can be priced several hundred dollars apart.
Looking ahead, though, Goodell thinks the holdouts will have to adjust to the new market. She expects prices to stabilize soon, but with developers building apartment complexes downtown and new university housing on line, she expects prices to hold steady indefinitely.
Case and Moore, though, don’t want to risk falling victim to another housing crunch. “The good thing about Berkeley is, if you get in at a low rent, you’re golden for as long as you live there,” Case said.