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 Hill, 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 opens.
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 up to 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 closer 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.
With all these local economic catalysts, it's growing harder to leave San Francisco for Honolulu. I've been trying since 2014!
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 in the best areas.
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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As a west side resident for the last 20 years I feel like folks are finally catching on. (ignoring all the doom loopers that have never set foot in the west side) I think St. Ignatius is also planning a huge expansion in the Sunset. https://sfstandard.com/2023/10/25/san-franciscos-st-ignatius-school-new-campus-plans/
One area that I think is a sleeper catalyst is the Parkside commercial area on Taraval Street. Not too far from CAIS. Similar to booming Clement in the Richmond. This has an incredibly high concentration of highly rated asian food, green space, library, police station, new pickle ball courts and sava pool.The street has been undergoing a multi-year upgrade, light rail, street improvements, lights etc. Looks rough now with all the construction, and it’s been tough for businesses but the work is slated to complete end of 2024. I think it’ll be a hot spot in the next 2-5 years.
Ah yes! SI expanding too. I forgot to include that in my West Side San Francisco post. Thanks for that.
Buying real estate on the west side of San Francisco is a no-brainer in my opinion. The amount of local economic catalyst is high. I’m also loving the new Pickleball courts at Larsen playground. So good for the community!
“We also can’t force the federal government to enact policies favorable for homeowners, e.g. SALT cap elimination.”
“New House Speaker Mike Johnson (R-LA), who promised these high-tax-state members that any major federal tax package that comes to the House for a vote will include an easing of the SALT limitation.”
It will be interesting to see if there is SALT limitation relief before it’s set to expire at the end of ‘25, or whether or not the SALT and/or reduced mortgage interest deductions are allowed to expire.
Oh man, I wrote a long comment and lost it. Not sure if it went through so this might be repetitive.
Just wanted to say congrats on purchasing your next home! It must be exciting to be in the process again. Are you moving to w portal, forest hill or st Francis woods? It was always a dream of mine to own a home in St Francis woods. I pass by that area all the time when I’m in the city to visit my mom. This article got me thinking about owning a property in San Francisco. (I can’t afford Saint Francis woods though!) I’d be happy with golden gate heights.
Been catching up on all your articles from the past few months and loved the one about spending more on food/ decumulation experiment. Glad you and your family got to live it up on good food. Recently, I adopted a rescue puppy from Korea. It’s like having a newborn. Glad I was able to catch up on all your articles tonight.
Can’t wait to read about your next house purchase and more about your house and neighborhood in a future article.
Thanks! I will be moving to one of those neighborhoods. I’m looking forward to having some more land, but I will sure miss my old home with the ocean views.
Additional ideas for your catalyst list
Google U-Haul one-way rentals and also pod rentals and see if the city are interested in is growing or contracting.
Check on United States census and see if the area is in a growing or contracting trend
See if the state that your city is that you want to live in is in a contractual or growing mode.
See if building permits are growing or contracting
Lastly, I always like to invest in areas that have a lot of local banks. If you live in an area that is concentrated the big four, I would avoid it
I understand the need for more housing. But having lived and attended high school on the West Side (Lowell HS, summer school once at Mercy, and classes at SFSU in lieu of AP classes), school lunch breaks at Stonestown –in 1984 it was an outdoor mall), I find all of this rather depressing. There is something magical about the chill, low-scale vibe of “The Avenues.” Being able to look up and see Blue Sky makes SF feel so livable and less oppressive.
San Francisco is charming and lovely in part because it’s a hybrid of a small town/village and an urban city without the hyper density and intensity of NYC, Hong Kong, nor the sprawl of LA, London etc. Most people on the West Side still drive to get around, but upgrading and adding more transit (say, an underground, or more tram lines) will not make it less of a car city.
People who ask for more density for more housing units always conveniently ignore that density has not been a solution anywhere in the world. Most everyone lives in a apartment buildings in NYC and that hasn’t stopped it from having astronomical rents (#1 in US at $4K for a 1BR in Manhattan) and home prices. Queens and parts of Brooklyn are also low scale but densely populated, and because of the lack of true transit options the traffic is horrible. Leaving NYC for Long Island or upstate means sitting in traffic, almost at all times of the day. Congestion pricing for entering Manhattan south of 59th street just got approved and will start in a year or so.
There are still huge swaths of SF that can be redeveloped — neighborhoods East/South East side that are still considered “undesirable” much like people used to dismiss The Avenues as sleepy, the fog belt, too Asian, etc. etc. Whenever I return to SF to visit family (nephew, niece went to CAIS, another two family members kids are at Presido Knolls), I can’t say that I’ve been impressed with the architecture that’s been developed and the traffic seems worse than ever.
I don’t have the answers and people will dismiss me as a NIMBY, but I wish they would leave the West Side alone.
I understand you’re “not in my backyard attitude.” I think you can feel good, knowing that the expansion will be gradual at over a couple of decades. In addition, the expansion will push property values up over this time period.
We need more density on the west side. Even if the west side was twice as dense, that’s not very dense given the single family zoning.
Let ’em call us NIMBYs, C M Cal. We remember a different time in this magical place. Time marches on, and I’m willing to acknowledge that nothing remains the same, but things in the City (and the larger Bay Area) truly were better back then; all we can do is be grateful we got to experience it.
And we’re STILL not LA! :D
Hi Sam, you believe investing in SF real estate is a good deal? I live in Portland, Oregon and similar to SF, all I read about for both cities is an upcoming “Doom Loop” as both cities struggle with homeless and drug issues and the overwhelming move of residents in both cities to the suburbs. My home in the heart of the NW Portland has declined in value since 2020 while the suburb home values have more than doubled, are you not seeing the same writing on the wall in SF?
Yes, I’m bullish on San Francisco. As someone who lives here, it is fascinating to see the disconnect between the media and reality here.
How’s your home price really fall and below 2020 levels? That seems hard to believe. If so, by what percentage?
San Francisco jobs pay $200,000 for 23 year old college graduates. And there are consistently opportunities to make millions of dollars with five years. Thanks to all the big public companies and the private companies.
The amount of wealth creation here is insane. OpenAI now valued at $90 billion and leasing 485,000 sqft of office space etc.
People love to hate on San Francisco. But if you actually come here, you’ll realize how amazing the environment is and what professional opportunities are.
Glad to hear you are optimistic on SF, hopefully the same will be true for PDX. Home values in the 97209 zip code have decreased roughly 20% since 2020 per Zillow and 2 homes on my street aren’t moving while Lake Oswego homes (a suburb of PDX) are still getting bidding wars. I need to match your optimism for the city as I’m not seeing it right now.
Sam, I know you’re bullish on the City, and I know it’s still possible to be in parts of SF where the signs of decline are invisible, but what’s your take on all the glaring problems—- the enormous number of small businesses that are disappearing downtown, the large homeless encampments, the open air drug markets, the epidemic of car break-ins, the closing of multiple major chains (Walgreens, CVS, etc.), the Westfield Mall’s decline/Nordstrom’s departure, the government advising federal employees NOT to come to work at the Federal Building because the area is so “unsafe”?
These are not small issues, they can’t be ignored. San Francisco is not the wonderful City I knew growing up in the Bay Area, when we suburbanite teenagers would trundle up there every weekend to hit the dance clubs, with no fear that we’d be mugged or return to our cars to find our windows smashed and gloveboxes rifled through. I know it’s not the full on hellscape often portrayed in the media, but it’s NOT in good shape. I find myself really reluctant to go there any more.
Do you see these elements changing any time soon? The recall of Chesa Boudin was a hopeful sign, as was the pushback of the parents against the SFUSD school board lunatics, but for the average middle class citizen, the City is becoming less and less pleasant. My fear is that the squalor on the east side will gradually spread west as the wealthier folks like yourself continue to abandon the City’s core.
Thoughts?
Yes, out with the old, in with the new. Elections are next year and change will and is happening. Everything tends to course correct.
Social media and the media have amplified negativity. Life is good in SF if you can afford it, but negativity is what sells. The disconnect is large, so I’m taking advantage.
It’s the same bad neighborhood that gets amplified over and over again.
Your positive attitude has always been one of your very best qualities, Sam— love it! And I’m going to grab hold of your confidence for the City.
My friends who live in the Haight would agree that it’s the worst areas that get all the attention, although they’d also agree that city “leadership” has got to go.
Heartily holding out hope that you’re right, and “The Doom Loop” will be arrested in favor of a real turnaround. The City is just too beautiful to lose!
I totally understand the hate towards San Francisco. It is an expensive and beautiful place to live with a lot of opportunity. As a result, a lot of people get shut out or have a difficult time making ends meet. I include myself in the latest job hunt.
But if you notice, most of the most vociferous haters don’t live in San Francisco and haven’t been to San Francisco in a long time. Every city has its problems on crime.
I just see so much opportunity here it is overwhelming. I just came back from talking to a startup founder in her office. They just raised a nice round of funding, and I think they are going to do pretty well.
Living here in Phoenix, the biggest catalyst is the TSMC factory in North Phoenix. However, I live in the west part of the valley where there is an unbelievable amount of development happening. Nearby, Buckeye is the fastest growing city in the US. Numerous apartment developments and two new hospitals being built.
TSMC fab is a massive catalyst. Maybe time to go hunting for homes or investment properties in North Phoenix while the market is soft!
Good point on recognizing local catalysts.
Having a school relocate in or near your neighborhood is huge.
Having a perpetual 60 new families a year coming in helps set a floor for real estate prices in the area. And if the school grows in size and reputation, more people will want to attend and buy real estate close by.
Children are everything to parents, hence so are great schools.
That is very exciting about the new UCSF Parnassus campus. That rendering looks incredible. I’ve only been to Parnassus a couple of times and it definitely felt so old and dated. A friend of mine had a bad experience in the ER there too. So I’m glad they will be revamping it all. Their doctors certainly are in high demand. It takes forever to get appointments. So hopefully with a new, larger campus they’ll be able to expand their staffing as they claim and help increase accessibility for patients.
It’s definitely a good feeling to move into an area that’s being developed or already be in an area that’s getting further developed in positive ways.