Why Apartment Rents In Oakland Are Falling Faster Than In The Rest Of The Country

One of the least pleasant changes brought about by Northern California's tech boom was skyrocketing rents and property values, which pushed many people to leave the Bay Area. 

Eventually, the spike in rents spread across the San Francisco-Oakland Bay Bridge into Oakland. After years of lagging behind San Francisco, Oakland rents caught up in a big way. Now, Oakland's rents are falling faster than the rest of the country. Benzinga takes a look at why.

Supply And Demand Still Works

Supply and demand are one of the oldest and most reliable drivers of the price of any consumer product. If the supply is low or demand is high, the price of any product can rise dramatically. When the supply is low and the demand is high, price spikes can have a devastating effect on consumer buying power.

In almost all cases, the effects are most acutely felt by consumers on the lower end of the economic scale. This is especially true in Oakland, which for years was considered a working-class city in relation to San Francisco and one of the few places where property prices were relatively affordable. Another factor that kept Oakland’s rents and property prices low in relation to its Bay Area neighbors was a stubborn crime problem that has still not been fully eliminated.

In spite of that, when the average apartment rent in San Francisco is nearly $3,500, it's only a matter of time before renters begin looking at options in Oakland — it's just a few stops on the BART train across the bay from San Francisco. Tech workers turned to Oakland and, as expected, average rents exploded to $2,300. That's still a high rent but you'd need to earn $6,000 per month to afford it as opposed to nearly $10,000 per month to afford San Francisco.

Developers And Legislators Take Notice

Renters are not the only people who take notice of an undervalued rental market. It's usually big investors who realize the potential in a market and begin pushing rents by acquiring and redeveloping properties in depressed markets. This private action is in addition to new state laws that modify or reduce zoning restrictions on new construction and accessory dwelling units (ADUs).

All told, this will result in a housing stock increase of over 25,000 units for Oakland by 2031. That translates to a 25% increase in available housing, which when paired with the population loss Oakland was experiencing — largely due to high rents — will rebalance the supply-and-demand equation in Oakland. The supply of new housing, with much of it being designated as affordable, has tilted the scales back into tenant's favor in Oakland.

It has led to Oakland being named by Apartment List as one of the 66 markets in the country with negative rent growth. What makes Oakland different is the size of the decrease, which sits at 8.2% compared to last year's average. The city, with concentrated growth in housing stock, is experiencing the largest decrease in average rents.

This May Prove To Be A Learning Lesson

For decades, California has shot itself in the foot with anti-growth policies when it comes to housing. Whether it was a case of short-sightedness by legislators or a collective case of Nimbyism, the results were devastating. Rents and home prices spiraled out of control because there weren't enough places for everyone to live. This eventually contributed to the homelessness crisis in the state.

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Oakland has shown this trend can be reversed through proper planning and cooperation between builders and legislators. Hopefully, other tight housing markets will take notice and act accordingly.

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