Bay Area Rents Are Cooling. That Might Help College Grads

Thanks to a cooling rental market, recent college grads are finding Bay Area rents a little more affordable, according to a report published Thursday by real estate firm Redfin.

Around San Jose, Redfin found the median rent in July for a two-bedroom apartment fell nearly 2% compared to last year. In San Francisco, the drop was even more dramatic, with rents declining nearly 7%. However, housing experts and advocates say that the report’s findings do not mean housing is becoming affordable for everyone.

“I don’t think we’re even close to that in the Bay Area,” said Jonas Bordo, CEO of rental listing company Dwellsy. “Rents are very expensive, and it’s a huge challenge for folks to be able to afford rent.”

Redfin’s report shows that last year, a recent college graduate in the San Jose metro area, which includes San Jose, Sunnyvale and Santa Clara, would have to spend nearly 31% of their income on rent for a two-bedroom apartment they might share with a roommate. For a studio or one-bedroom apartment, they might spend almost half of their income on rent.

Because the rental market has cooled, that same person today might only spend about 28% of their income for a shared two-bedroom apartment and would no longer be considered “rent-burdened” — or spending more than a third of their income on housing.

The findings are slightly different in the San Francisco metropolitan area, which includes San Francisco, Oakland and Berkeley: A recent graduate, who might have paid just over 31% of their income on a two-bedroom apartment last year, would now spend about 27%. For a one-bedroom apartment or studio, that graduate last year would have spent more than half their income on housing. Today, they might spend just over 43%.

The report uses an estimated median salary of nearly $109,000 in the San Jose metro area and just over $84,000 for the San Francisco metro. Those salary figures are somewhat higher than the national average, Redfin chief economist Daryl Fairweather said, because the Bay Area leads the country in salaries for recent college graduates.

“If you are graduating with a degree that doesn’t bring you a high-tech income, then it will be even more difficult for you to be able to afford rent,” she said.

UC Berkeley Labor Center organizer Brad Hirn said because rent prices increased at record rates before and during the pandemic, softening rents should not be viewed as a move toward affordability. Nationwide, rents increased nearly 21% over the past five years, according to a recent report from Harvard’s Joint Center for Housing Studies. The same report found that rents increased only 0.2% nationwide last year, a much more modest increase than the 15% increase in early 2022.

“They start to argue that the market has cooled, and it’s like okay, you set it on fire and then decided to drop a few drops of water on it,” Hirn said. “It’s just kind of detached from reality.”

According to Harvard’s report, new apartment construction has helped soften rent prices. The report found that 22% more apartments were built last year compared to the year before.

Meanwhile, Bordo said as people are under financial pressure and delaying decisions about moving out of their parents’ homes or getting married, fewer renters are forming their own households. Coupled with new homes coming onto the market, that can also soften rent prices.

In the Bay Area, demand for rental apartments and homes also took a hit as people moved out of the region in favor of more affordable areas.

Bordo said the trends shown in Redfin’s report might help some renters, but that doesn’t necessarily equate to meaningful affordability.

“We’ll see some more people come into the market as a result of being able to afford things that they wouldn’t have been able to before,” he said. “But it’s not like housing is going to be regarded by any of us as inexpensive anytime soon unless something significant changes.”

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