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With Thousands of New Apartments On the Way, Landlords Still Prefer Victorians

Report says 59 percent of apartment building sales predate 1920

For some market watchers, 2016 has been a lot of holding their breath.

Everyone agrees that the days of 18 percent year-over-year appreciation have petered out (thankfully), but will things snap back in a downward direction anytime soon?

For answers, Paragon Real Estate’s latest parsing of the market delves into the buying and selling of multi-unit apartment buildings in the city. Their conclusion: Everyone expects a slowdown, but it doesn't seem to be happening right now.

Yes, the Bay Area housing market does tend to toward insolence—not doing what we want it to do. That’s the hallmark of its capricious ways.

Of course, a delay before a dip is hardly unusual (in fact, it’s preferable; sudden change freaks people out), so as usual we’ll have to wait and see whose crystal ball is cloudy and whose isn’t.

Although prices for tenants are more or less flat these days, the cost of becoming a landlord is still on the rise. The price of the average San Francisco apartment building now sits at $1.85 million, up from $1.57 last year. Paragon recorded a figure of just over $1 million even as recently as 2012.

An overwhelming 78 percent of residential building sales are properties that predate World War II. And Victorians and Edwardians (i.e., buildings dated from 1880-1920) make up 59 percent of sales all on their own.

The last 35 years worth of construction made up only two percent of sales in the first half of this year.

What's more, area landlords seem to prefer two-unit buildings, as those commanded a higher median price than even many larger structures in neighborhoods like Pacific Heights and Hayes Valley.

Many will credit and/or blame that on the relative dearth of new building during those decades, of course. And Paragon agrees, noting that there was "virtually no market-rate housing construction" until just about now.

Indeed, most of what’s in the pipeline is, well, still in the pipeline. And although newfangled condos remain splashier projects, apartments still outnumber condos two-to-one in terms of units approved. Of those projects already being built, fewer than 2,500 units are destined for sale, while over 6,800 are aimed at the rental market.

Perhaps most telling is when people don’t buy: There were 240 sales in the first half the year, but also 137 expired listings.