As he touted a construction boom that has brought thousands of new homes to Berkeley during his time in office, Mayor Jesse Arreguín made a bold claim in his “state of the city” speech last month.
“This approach is actually paying dividends in addressing our efforts to make Berkeley more affordable,” Arreguín told an audience of supporters. “A recent analysis shows that as a result of the housing production in our city, rent prices are leveling and beginning to show signs of decreasing.”
Like in cities across the country, a core question in the debate over how to address Berkeley’s housing crisis has been whether making it easier for developers to build a lot more pricey new apartments for wealthy renters will result in more-affordable housing for everyone. So Berkeleyside put Arreguín’s claim to the test, by analyzing data from tens of thousands of leases tracked in the city’s rent registry.
We found Berkeley’s notoriously expensive rental market has cooled in recent years — though the question of what’s driving that shift, and whether it will hold up for the long term, is harder to answer.
After increasing by more than 10% per year through most of the 2010s, rent prices for new leases of one-bedroom units on the affordable end of Berkeley’s market have risen by less than 3% annually since 2018. Inflation has been far higher than that recently, so advocates note rents have declined in inflation-adjusted dollars.
UC Berkeley professor Carolina Reid said she would need to see more extensive data before definitively saying the city’s steps to approve more housing in recent years deserve the credit for easing price increases, as opposed to other factors such as the COVID-19 pandemic. Still, Reid noted, other research has found building more housing has that effect.
“I would be very hesitant to make a direct connection that the increase in supply is the main driver,” said Reid, the faculty research adviser for the Terner Center for Housing Innovation. “This is what we would expect to happen given other studies, but from these data alone it’s hard to draw a causal conclusion.”
Arreguín told Berkeleyside the analysis he cited came from a Substack post written by housing activist Darrell Owens, which was based on data that another advocate, Jeff Baker, regularly scrapes from the rent registry’s searchable website. Baker shared his data with Berkeleyside, which we combined with historical lease data from the Rent Stabilization Board.
We focused on rents for the roughly 19,000 apartments that are fully covered under Berkeley’s rent control ordinance, meaning multi-family buildings built before 1980. These homes can provide what experts call “naturally occurring affordable housing,” because they are typically cheaper to rent than newer buildings.
And we examined rent prices for new leases of those apartments to get a sense of what the market looked like over the past several years — Berkeley’s rent control ordinance limits how much landlords can raise rents for existing tenants, but they can charge a new tenant whatever they want.
“This segment of the housing market does end up providing a lot of the lower-cost housing for families and households in cities like Berkeley,” Reid said. “When we see extreme rent pressures in that kind of stock, that can contribute to displacement.”
The first trend in the data won’t come as a shock: Housing prices exploded as the Bay Area’s tech-fueled economy roared back from the Great Recession.
The median monthly cost of a new lease for a one-bedroom, rent-controlled apartment in Berkeley was $1,175 in the first quarter of 2011. By the second quarter of 2018, it had nearly doubled to $2,300 — rents had risen by $156 per year on average, or 10.4%.
But the increases have slowed since then. In the second quarter of 2023, median rents for those units stood at $2,495, up less than $200 over five years, or $39 annually.
The trend was similar for two-bedroom units, for which rents rose by $228 per year from 2011 to mid-2018, compared to $52 per year since then.
Preliminary data indicates the third quarter of 2023, the busy leasing period of July through September, may prove even milder; full data from the period won’t be available until later this fall.
Advocates like Owens note the steep rent increases started tapering off well before the pandemic began in 2020, and after housing production ramped up in Berkeley.
Between 2001 and 2014, the city permitted fewer than 200 new homes per year on average, according to data from its planning department, with production particularly low as the Great Recession tanked housing construction.
Since then, Berkeley has approved nearly 600 units per year on average, and is on a steep upward trajectory — 887 homes got the green light last year, while another 828 newly built units opened to residents, both the highest figures in decades.
To Owens and Baker, the trend in Berkeley looks like the housing phenomenon known as “filtering” is in action.
“The new apartments are attracting all of the students who live close to UC Berkeley away from the older, rent-controlled housing elsewhere,” Owens said. That leaves less competition for other apartments, housing advocates say, which means landlords can’t set rents as high as they could if legions of tenants were clamoring to move into those units.
“That’s exactly what we want to see,” Owens said.
Berkeley Rent Stabilization Board Chair Leah Simon-Weisberg isn’t convinced.
Like others in Berkeley, Simon-Weisberg is deeply skeptical of the idea that adding market-rate apartments will lower rents for less-wealthy tenants, and contends the only way to accomplish that is to build far more dedicated affordable housing.
She argues COVID-19 has done more to shape housing costs than new construction, and its effects may only prove temporary. Berkeley’s rental market has been more volatile over the past three years, as rent levels dipped when thousands of students cleared out of the city in 2020, then surged after they returned.
And Berkeley isn’t the only Bay Area city where the rental market has softened. Rent levels in San Francisco started dropping in 2020 and still haven’t recovered — they remain lower this year compared to 2019, according to data from the real estate listing site Zillow, even as the city continued to draw scrutiny from housing advocates and regulators who say it stifles development.
Moreover, Simon-Weisberg said the modest improvement in affordability Berkeley experienced over the past few years “is not going to make a difference in terms of our housing crisis.”
“I don’t feel like people are saying, ‘Yeah, it’s easier to find housing now in Berkeley,’ or ‘I can afford to live here now,’” she said.
While supporters of Berkeley’s steps to build more housing agree that more data and analysis are needed, they contend the easing rental market is an encouraging sign that the city is on the right track. Arreguín, whose political identity has been defined in part by a shift in his thinking about how development affects affordability, said in an interview that the data bolster the view he has embraced over the past several years.
“Time will tell, but I think this goes to show [that] approving new homes — even at above-moderate income levels — has an impact in reducing the cost of housing,” he said. “Berkeley is not immune to the basic economic principles of supply and demand.”
