Historical Real Estate Trends: How San Francisco's Housing Market Diverged

According to the San Francisco Chronicle, in 1890, Idaho and Wyoming became part of the United States, the Ouija board was patented, and “Colonel” Harland Sanders was born. Housing in San Francisco was also much cheaper, with prices trending close to those in the rest of the country. It wasn’t until around 1960, a year after Hawaii became the 50th U.S. state, that San Francisco housing costs began to diverge significantly from the national average.

Unveiling Historical Housing Costs

A new and innovative data source from the Federal Reserve Bank of Philadelphia traces housing costs in major U.S. cities over more than a century. This data, based on newspaper advertisements for houses and rentals in several major U.S. cities, is adjusted for inflation and changes in housing quality. Although the data only spans from 1890 to 2006 — before the pandemic-related surge in home prices — researchers say it provides a rare glimpse into long-term price changes.

San Francisco Housing Prices in the 20th Century

Throughout the 1900s, housing prices in San Francisco and the overall U.S. experienced several leaps and tumbles. However, the jumps became much larger in California cities starting in the latter half of the century.

“California was, even before the ’60s and ’70s, a bit more expensive than the rest of the country, but it really diverged around the late ’60s onward,” said Issi Romem, an economist at MetroSight and a fellow at the UC Berkeley Terner Center for Housing Innovation.

By 1990, San Francisco’s for-sale homes were priced at roughly 3.7 times what they were a century before, adjusted for inflation. Among prices in major U.S. cities overall, prices were just 1.5 times their 1890 levels. The gap grew even wider over time. At the peak of the housing bubble in 2006, for-sale homes in San Francisco cost 5.6 times what they did in 1890, compared to 2.5 times nationally.

The Surge in Rental Prices

Rental prices also surged more quickly in San Francisco than in most other cities, though to a lesser extent. San Francisco asking rents were about 2.7 times as high in 2006 as they were in 1890, compared to 1.2 times for the U.S. overall. However, San Diego saw an even bigger surge, with its 2006 for-sale home prices about 16.7 times their 1890 levels, the largest increase among the cities with sufficient data.

Why Did California Home Prices Rise So Rapidly?

Not every major state saw their home prices rise as much as California or even increase at all. Dallas’ home prices in 2006 were only 60% of their 1890 costs. The report doesn’t analyze why housing prices in California’s large cities increased so quickly in the 1960s and 1970s, but housing experts like Romem have offered some explanations.

Environmental Policies and Urban Sprawl

California experienced a strong push toward environmentalism in the 1960s. The state created the world’s first coastal protection agency to guard the Bay Area from pollution and overdevelopment. In 1970, legislators passed the California Environmental Quality Act to keep construction projects from damaging the environment. The 1965 Williamson Act also gave property tax cuts to owners of farmland who agreed not to develop their properties. These policies drastically limited urban sprawl, meaning most new housing needed to be focused in already-developed areas.

Housing Density and Supply Constraints

Cities across the U.S. gradually limited housing density, especially in suburbs, leaving few pockets available for home development. This resulted in “islands of density in a sea of no-growth,” Romem explained. Single-family areas became untouchable, causing California home prices to soar even faster than in other states.

Rising Home Prices as Investment

As the cost of for-sale housing rose, buying a home became not only about finding a place to live but also about acquiring an investment that could fund an owner’s retirement or pay for their children’s college tuition. This caused home prices to rise even faster than rent costs.

Source: San Francisco Chronicle

San Francisco's real estate market has a fascinating history and unique trends. If you're curious about how these historical insights can inform your next move, connect with Jason Buttorf today. Whether you're buying or selling, Jason provides expert guidance to help you navigate the complexities of the market with confidence.