Local economic catalysts are important for supporting the value of your home. Therefore, before buying a house, you must look into the future as to what might affect the demand for housing in your target neighborhood.
We can’t control what the Federal Reserve does with interest rates. We also can’t force the federal government to enact policies favorable for homeowners, e.g. SALT cap elimination. Hence, understanding local economic catalysts are crucial for forecasting real estate values.
Given I’m thick in the middle of another house hunt, I thought I’d share some local economic catalysts I see for the neighborhood where I want to buy. It is on the west side of San Francisco.
Perhaps this post will help you think more strategically before you buy a house as well. After all, the old real estate saying “location, location, location” is more true now than ever before.
The Main Local Economic Catalysts For Home Price Growth
Here are the most common local economic catalysts for home price growth. These catalysts will all be in or near your neighborhood.
- New companies relocating, e.g. OpenAI leasing 485,000 square feet of office space in SF
- Existing local companies reporting terrific earnings results and announcing they will be expanding their workforce
- New pharmacy and convenience store openings
- New schools opening or existing school expansions
- A demographic influx due to a decline in one neighborhood, e.g. financial district due to the pandemic
- A demographic influx due to international variables, e.g. China lowering capital restrictions, the Taiwanese government buying a building to improve economic ties.
- Purchase of new buildings or expansion of existing buildings by hospitals
- New malls are redevelopment of an existing mall
- Development or expansion of a new or existing parks
Ideally, you can identify at least three local economic catalysts before buying your house.
Originally Bought San Francisco West Side Property Due To An Anomaly
I started buying real estate in the Golden Gate Heights neighborhood of San Francisco in 2014 due to an anomaly as opposed to local economic catalysts.
Many Golden Gate Heights single-family homes have ocean views, which I find valuable. If you go to any city in the world that’s near the ocean, ocean view properties trade at premiums to the median price per square foot of that city.
However, in 2014, I noticed ocean-view homes in Golden Gate Heights traded at a 10-20% discount to the median price per square foot in San Francisco. Therefore, I began buying. In my mind, ocean-view homes should actually trade at 20%+ premiums to the median. This 30% – 40% pricing anomaly was enormously attractive.
Since 2014, the price gap has narrowed. However, I still think there’s a lot more upside, which is why I plan to hold onto my west-side properties for the next 20 years.
Working in international equities for 13 years and living in six countries growing up gave me this perspective. Big picture, San Francisco is also one of the cheapest international cities in the world, especially when compared to income.
The Desire For More Affordable Housing
Before the pandemic, I also hypothesized that San Francisco residents wanted more space, peace, and quiet for a cheaper price. I got this feeling because, in 2015-2016, I gave over 500 Uber rides. That’s right. Not 5 or 50, but 500+.
I tried to get to know something about most of my passengers. I had already observed where people were going after driving all over the city and the Bay Area.
What I noticed about my passengers was that there were many people with flexible schedules who often lived on the west side or travelled to the west side of San Francisco. At the time, Uber and Lyft were heavily subsidizing rides. They were also pushing group rides, which made ridesharing even cheaper.
Based on my firsthand observations, I concluded that more San Francisco residents would move out west for more affordable housing given cheap ridesharing transportation. We’re talking $5 to get quickly downtown versus $25-$30 with a taxi before.
Once the pandemic hit, the demand for homes on the west side of San Francisco surged higher due to lower cost, more space, and the ability to work from home. The demographic weight of the city moved from east to west.
Local Economic Catalysts For San Francisco’s West Side
The home I want to upgrade to is also on the west side, but in a more expensive neighborhood. The neighborhood has larger homes on larger lots, which are great for families.
Given the home is more expensive, I began to look for local economic catalysts that would support the home’s price and future price growth. This is an exercise you should write out if you are in the home buying process as well.
Identifying these five catalysts gives me comfort in dropping my contingencies and moving forward.
1) A school is relocating to the west side
Good schools that remain good are one of the most important local economic catalysts for supporting home prices. In September 2024, the Chinese American International School (CAIS) will likely be relocating to a new 5+-acre campus on the west side of San Francisco. It is moving from Hayes Valley, on the east side of San Francisco.
The campus was purchased in 2021 and is currently going through a gut remodel. Chinese American International School is the oldest Mandarin immersion school in the country. It is also one of the best.
The school hosts grades preschool 2 through 8th grade. Preschool has four classes with about 16 students per class. Therefore, we’re talking about 64 kids and about 60 incoming families a year.
Out of the 60 new families, perhaps 30 families every year will want to move to the west side of San Francisco to be closer to the school. If you’re a couple who just had a baby and are set on CAIS, then you will logically try to relocate closer to the school if you aren’t already on the west side.
Of course, not every family relocating will buy property. Some will rent. However, whether these new families rent or buy, they will help support rents and property prices on the west side.
Younger families might start buying in cheaper west side neighborhoods such as the Outer Sunset and Parkside, then the Inner Sunset, Golden Gate Heights and West Portal, and then in Forest Hills and St. Francis Wood.
Existing Families May Relocate As Well
Then there are the existing ~400 families at CAIS, some of whom may relocate to the west side of San Francisco as well. The families looking to relocate probably have kids who are in the 3rd grade or younger. If you can see yourself owning a home for five years or longer, it makes it easier to buy.
I went to several open houses in West Portal, Forest Hills, and St. Francis Wood recently and bumped into five couples with kids who are considering attending CAIS or who are already at CAIS. So I think the hunt for west-side properties is already on in anticipation of the school’s September 2024 opening.
However, most people tend to wait until the last minute before taking action. Therefore, I suspect there will likely be a big uptick in demand for west-side property once the school officially announces its opening.
By the summer of 2024, the demand from these families for west-side homes should be intense. The supply of quality single-family homes is already low and may remain low due to the “locked-in effect” for the foreseeable future.
Due to the relocation of the school, every year, there will be potentially 60 new families looking to buy property near the school forever. If the school expands to offer more preschool spots, demand for real estate near the school will continue to increase.
2) A Massive $4.3 billion remodel of the UCSF Hospital at Parnassus Avenue
In March 2022, the University of California Board Of Regents approved and got approval for a $4.3 billion remodel of the UCSF hospital at 401 Parnassus. I didn’t think much of it then until another dad mentioned he wants to buy a multi-unit property near the campus.
UCSF Medical School, which is affiliated with the hospital, is one of the top medical schools in the country. In 2022–23, UCSF hospital was ranked as the 12th-best overall hospital in the United States by U.S. News & World Report.
The new facilities will increase the inpatient bed capacity from 499 to 682 beds, or by 37%. The result of this expansion also means capacity for 1,400 new employees once completed in 2030.
1,400 new jobs is huge! In addition, the wages for these new hospital jobs will likely be relatively high. We all know doctors, nurses, and administrators make six-figure incomes. But then there are also technicians, pharmacists, financial managers, physician assistants, therapists, and many more roles that pay six figures.
In fact, one of my tenants is a UCSF NICU nurse who makes over $180,000. And two USTA tennis teammates are UCSF doctors who may move to the west side. They each earn over $250,000.
If just 30% out of 1,400, or 520 new people go looking for housing on the west side, the demand curve for rentals and home purchases will go way up.
At any given moment, there are less than 20 attractive single-family homes for purchase on the west side. There are less than 40 attractive rental properties as well.
Growth Of Surrounding Businesses
What’s also positive about UCSF’s expansion is the growth of surrounding businesses. There will be more restaurants, hardware stores, coffee shops, barber shops, nail salons, and more due to increased job growth.
The growth of these businesses will bring in more renters and property buyers, driving property prices rents even higher. In other words, there will likely be a “boom loop.”
3) Upzoning of San Francisco’s west side for more residences
To help solve the housing affordability problem in San Francisco and California, the state government has mandated San Francisco to build 81,000 new homes by 2031. This is never going to happen so quickly due to government inefficiency, government bureaucracy, corruption, and rising costs. However, the state mandate is a clear directional trend for more economic growth for San Francisco’s west side.
Below is a map by Will Jarrett that highlights the proposed build out of San Francisco’s westside for upzoning purposes. The idea is to build more housing along major transit corridors, e.g. Clement St, Irving St, Fulton St., Noriega St, Taraval St, 19th Ave, and around the Laguna Honda station. Height proposals for new buildings are generally for up to six stories. For more details, check out this article.
For those concerned about massive density and oversupply, don’t worry. The buildout of new homes will likely take much longer than expected. But as a real estate investor, you want to know where the money is going long-term. And long term, there is development towards the west side, which should bring in new businesses, new services, more residences, and higher real estate prices.
It would be wise for San Francisco to develop two city centers, one on the west side, and one on the east side. The city can learn all the mistakes it made on the east side and make the west side so much better.
4) Development of Larsen Park
Post-pandemic, I’m convinced more people are going to focus on eating better, exercising more, and building a stronger community. As a result, the development of eight new pickleball courts at Larsen Park on Vicente and 19th will be a positive for the west side community.
There will be negligible impact on neighboring home prices given the courts will be built next to 19th avenue, an already loud and busy street. Instead, the courts could actually boost the value of homes within a two-block radius.
Investing in Larsen Park is a sign the city of San Francisco is serious about improving the facilities on the west side. As more families migrate to the west side, more money will be dedicated to the west side in a virtuous loop.
If you currently live in a city, you know how painful it is to redevelop and get anything done.
5) Convenience stores and store growth in malls
My favorite local economic catalyst is when pharmacies like CVS or Walgreens buy up locations to open new stores. This is a strong sign the surrounding area is growing. The same goes for convenience stores like 7-11 and grocery stores like Safeway.
These stores do tremendous due diligence before proceeding. Therefore, if they are willing to invest, you should feel more confident in buying a home nearby. You’re essentially piggybacking off their research.
Stonestown Mall, on the west side of San Francisco, has been expanding aggressively with new stores such as Shake Shake and Whole Foods. What I’m most excited about is Round One Entertainment replacing all of Nordstroms. It will be a multi-level amusement center for family and kids.
Track Local Economic Developments Diligently
Please spend time researching local economic developments before buying a house. You’ll find that many of these developments take years to complete. As a result, this gives savvy homebuyers time to save up funds and buy homes with the most local catalysts.
A home will likely be the most expensive purchase in your lifetime. Spend as much time as I do in conducting research. Ask local small business owners how business is going. Drive around and experience the traffic. Visit redevelopment sites and ask when they will be finished. The more due diligence you do before buying a house, the better.
One of the keys to being a successful real estate investor is getting ahead of the demand curve. Once these catalysts are crystal clear, it will be much harder to get a deal because everybody else will want to buy too.
Reader Questions and Suggestions
What are some local economic catalysts you foresee in your neighborhood? How do you quantify how much each economic catalyst will boost real estate demand?
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