Here’s the deal. Competition for condominiums is not only from City residents (some 850,000), but from 7 million+ folks who live in the nine counties surrounding the City. Now, think about adding to this housing competition some 18 million who live in the Los Angeles Metro area and will be able to get here in less than three hours!
And they don’t have to fly into SFO or Oakland, but can arrive at the Transbay Terminal downtown, and then walk to a hotel or condominium.
It’s Already Underway
There’s a 119-mile stretch (part of the 500-mile distance from LA’s Union Station to Transbay) in the Central Valley that is now under construction. Why start there? Two primary reasons: developing rail infrastructure in relatively flat, rural areas allows for lower construction costs and more opportunity for necessary testing, and by law, certain funds needed to be expended by 2017 – a deadline that could not be met if construction were to start in densely-populated urban areas.
BTW, over the past 10 years, the Central Valley has been the fastest growing region in the state, with its population increasing by 17 percent compared to 10 percent statewide. Moody’s Analytics predicts that by 2040, there will be close to 10 million people living in the Valley. The cities of Fresno and Bakersfield today have populations of 500,000 and 350,000 respectively.
The connection between LA and San Francisco is now estimated to be completed in 2029.
Not Until 2029?
If we’re talking real estate, we need to think long term, right? For those of us older than the Millennials, we know that 10 years goes by in a flash. Investing in San Francisco residential real estate makes sense only if one plans to remain here for five or more years. Anything less is a crap shoot because the market is cyclical, and it may be difficult to get out with a “whole skin” if one wants to sell sooner.
We have just come off four years (2012-2015) of 10%+ price appreciation. The market had to take a breather, and it did so in 2016 (off 0.5% for condominiums). For the last 23 years, since 1994, with two recessions thrown in, the average annual price appreciation was 7.0% for condominiums and 7.9% for single-family homes, city-wide.
Condo Prices and Hi-Speed Trains
Most of the post-2005 condominium construction has taken place downtown in South Beach, Yerba Buena, etc. For several years now, their re-sale prices have been on a par or higher than the traditional high-end neighborhoods – Nob Hill, Russian Hill, Pacific & Presidio Heights, Cow Hollow and the Marina.
In 2016, re-sales were around $1,215/sq. ft. in South Beach/Yerba Buena and $1,250 to $1,330 in the traditional neighborhoods.
However, newly constructed units downtown have fetched more than $1,400/sq. ft. in 2016, and I’ll bet that they continue to exceed prices of the traditional neighborhoods in the future because of their high amenity levels as well as convenience to jobs and, guess what, the coming of high-speed trains.
The state of California is growing quickly, and its aging infrastructure can’t accommodate the population increases. It’ not feasible to add more freeways or more airport runways at SFO, OAK, SJC, LAX, or SAN. High-speed rail is a major alternative to terminal gridlock.
One of its biggest advantages is that it offers passengers “one-seat” all the way from downtown Los Angeles to downtown San Francisco. It’s also electric so it will improve air quality.
See you in the club car in 2029!
The Pulse of the Market book (edited Pulses from 2005 to 2015) is available in paperback and Kindle at Amazon.com. It offers insights and perspectives on what has made San Francisco residential real estate tick in the past 10 years. Let me know if you would like a personal autograph.