Los Angeles, CA Money Rental Market San Francisco, CA

Downtown California: How Have Housing Costs Evolved Since the Recession?

The American downtown has changed significantly throughout the years. Today’s urban core can bring to mind anything from chic streets and luxury designer boutiques, to business professionals running around financial districts, or dark alleys you avoid crossing at night. But ever since towns expanded into cities, the downtown has been the cultural and commercial heart of urban America – a title which has yet to change.

Californians, in particular, have had a complicated relationship with their cities’ downtowns. The state’s urban cores are the most lively and walkable areas in the sprawling mega-cities on the West Coast, but they’re also the most controversial. Infamous neighborhoods still make their mark on California’s urban cores while rapid development is changing how locals live and work in them.

Recently, our sister company PropertyShark, analyzed the downtown home price evolution of the nation’s top cities. We decided to put California into focus by looking at how all housing costs, including rents, evolved in the state’s downtowns throughout the decade. To this end, we compared the costs of both renting and owning downtown versus the rest of the city by analyzing average rents and median home prices in 8 of California’s largest cities. PropertyShark provided home price data while YardiMatrix supplied rent data.

Use the code below to embed the image on your website:

California’s downtowns show contrasting trends for today’s renters and homeowners

Californian downtowns paint two different pictures when you compare the evolution of home prices with that of rents. While downtowns post consistently higher average rents than the rest of the city, the opposite is true for median home prices. In 2018, out of the eight cities we analyzed, six had higher average rents in the downtown areas versus the rest of the city. However, when it comes to home prices, six cities posted medians that were lower downtown.

Long Beach is a telling example –  renters had to spend 32% more to live downtown in 2018, while homeowners paid a significant 33% less to purchase a home in the urban core. Similarly, the average rent in Downtown L.A. was 6% higher than that of the rest of the city, while the median home price was 6% lower.

Then there’s San Francisco, the poster child for mega-growth, where this trend shifts. Rents were a modest 2% lower in the Financial District than in the rest of the tech hub in 2018. Home prices, however, were 17% higher. While a 17% gap might not seem that wide, given the high prices in the area, it adds up to a whopping $220,500 – the most significant difference between medians registered in the eight cities we analyzed.

Renters should prepare to pay a premium for downtown living

A clear trend emerges in the Californian renting market: average rents are consistently higher in the downtown areas, regardless of how the recession affected them. While downtown rents fluctuated in the 2008-2018 period, overall, renters had to pay an average 13% more for the perks of downtown living.

In L.A., downtown rents were higher than those in the rest of the city every year since the downturn. However, the gap between core and city has been narrowing. While in 2008 it cost 10% more to rent downtown than in the rest of the city, the difference decreased to 6% in 2018.

Downtown rents fluctuated both above and below the average rents registered in the rest of San Francisco. Even though it’s been more expensive to rent in the Financial District in seven out of the past eleven years, renters paid 3% less for living downtown in 2008 and 2% less in 2018, making San Francisco a wildcard.

Meanwhile, San Diego’s downtown had an upward trajectory when compared to the rest of the city. While the average downtown rent was 4% cheaper in 2008 compared to the rest of the city, 2010 marked a turning point. Since then, the average downtown rent has been rising at a faster rate, closing 2018 at 8% higher than the rest of San Diego.

San Jose is the most balanced Californian city we analyzed rent-wise, posting the smallest price differences between the two areas. In 2008, renters paid 5% more to live downtown, but the gap narrowed over the next two years. By 2018, the downtown rent was only 0.6% higher than that in the rest of the city.

Renters in Downtown Sacramento and Downtown Long Beach, on the other hand, have spent considerably more than their counterparts outside their cities’ urban cores. In 2008, the average downtown rent was 30% higher in downtown Sacramento and 26% higher in downtown Long Beach compared to the rest of the neighborhoods. By 2018, the price gap narrowed in Sacramento, making it 29% more expensive to rent a home downtown. However, in Long Beach, the gap widened, and its downtown was 31% more expensive than the rest of the city.  Massive revitalization in the area, along with overcrowding and low housing stock likely contribute to the trend.

Downtown home prices are lower than neighborhood prices

While average rents are higher in Californian downtowns than in the rest of the city, the opposite is true for median home prices. Since you’re much more likely to find condos for sale than pricier single-family homes, it explains the trend. The fact that more and more Americans choose to rent rather than buy in the nation’s most significant urban areas may also have an impact.

Los Angeles posted the smallest price differences between downtown medians and those in the rest of the city. In 2008, it was 8.3% cheaper to purchase a home downtown than in the rest of L.A. Similarly, in 2018, downtown homeowners paid 6% less than those in the rest of the city. As home prices in L.As upscale neighborhoods can pull the median up significantly, itțs not a surprise that prices were lower in the cityțs urban core for most of the 2008-2018 period. When they did surpass those in the rest of L.A., it was by a maximum of 2%.

Downtown San Francisco is a wildcard when it comes to median home prices as well, not just renting. While it was 10% more expensive to buy a home downtown versus in the rest of the city in 2008, the price gap grew to 17% in 2018. The evolution doesn’t seem all that extreme, so to illustrate the unpredictability of the San Francisco housing market, consider that just one year earlier, in 2017, it was 62% more expensive to buy a home downtown. In net numbers, that adds up to a whopping $696,000.

While the difference between rents downtown versus the rest of the city had an vertical trajectory in San Diego, the reverse is applicable for home prices. In 2008 it was 6% more expensive to buy a home downtown, but by 2018, the medians outside of the city’s core had outpaced downtown prices by 8%.

Meanwhile, in San Jose, though the gap between rents downtown and the rest of the city is now virtually unnoticeable, the difference between median home prices is becoming more and more visible. In 2008 it was 5% cheaper to purchase a home downtown. By 2018, however, it was 12% cheaper, influenced in part by the push to increase housing stock by developing condominiums and high-rise buildings. That may not seem like much, but in San Jose, it translates into a significant $132,000.

Homes in Downtown Sacramento are the most expensive compared to those in the rest of the city. The median home price in the city’s urban core was 161% higher than that in the rest of Sacramento in 2008, the most substantial price difference out of all the cities we analyzed. Although the price difference between the two areas contracted in the last 10 years, Sacramento still sports the biggest price difference – in 2018, the urban core posted medians 60% higher than the rest of the city.

Last but not least, in Long Beach, buying a home downtown has become increasingly cheaper than in the rest of the city. If in 2008 downtown median home prices were 5% higher than in the rest of the city, in 2018, they were 33% lower.

All in all, while in some areas the price gap between a city’s urban core and the rest of its neighborhoods is quite small, in most Californian cities, it’s not only noticeable but fluctuates wildly over time. However, taking these cities’ accelerated growth into account, spikes are bound to happen.

Are you looking for apartments for rent near you? Browse through thousands of listings and find the perfect fit for your needs, whether you want to live downtown or in a quieter neighborhood.

Methodology

  • This study was compiled by RentCafe.com, a nationwide apartment search website that enables renters to easily find apartments and houses for rent throughout the United States.
  • To determine the yearly median sale prices for each city, PropertyShark looked at all residential transactions for single-, two-, three- and four-family homes, condos, co-ops, row- and townhouses. All package deals were excluded. The same criteria were applied to calculate the median sale prices for each downtown area, defining downtown boundaries according to proprietary PropertyShark maps.
  • To determine the yearly average rent price for each city, we looked at apartment data related to buildings containing 50 or more units. The study includes cities with populations over 300,000 and a rental stock of at least 2,900 apartments in 50+ unit buildings. Downtown boundaries were determined according to proprietary PropertyShark maps.
  • Rent data was provided by Yardi Matrix, a business development and asset management tool for brokers, sponsors, banks and equity sources underwriting investments in the multifamily, office, industrial and self-storage sectors. Rental rate coverage is for Market Rate properties only. Fully Affordable properties are not included in the Yardi Matrix rental surveys and are not reported in rental rate averages.

Fair use and redistribution

We encourage you and freely grant you permission to reuse, host, or repost the images in this article. When doing so, we only ask that you kindly attribute the authors by linking to RENTCafe.com or this page, so that your readers can learn more about this project, the research behind it and its methodology.

 

Discover Apartments Near You

At RENTCafe.com, the perfect apartment nearby is just a click away.

APARTMENTS NEAR ME

About the author

Irina Lupa

Irina Lupa is a creative writer for RENTCafé, where she covers market trends and topics relevant to today’s renters. Before developing a passion for real estate, she focused on fields ranging from automotive electronics to digital business development, digging into tech news from a critical perspective. Irina holds a B.S. in Journalism and Mass Communication. You can connect with Irina via email.

Add Comment

Click here to post a comment