Are ‘average’ California rent hikes good news or bad? – Daily News

on Jan31
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The “Looking Glass” ponders economic and real estate trends through two distinct lenses: the optimist’s “glass half-full” and the pessimist’s “glass half-empty.”

Buzz: Projected rent hikes in California’s biggest housing markets are expected to run slightly above the national pace.

Source: My trusty spreadsheet analyzed forecasts compiled by the Marcus & Millichap brokerage for 46 big U.S. apartments markets, including seven in California: Los Angeles, Orange County, Inland Empire, San Diego, San Francisco, San Jose and Sacramento.

Debate: Will landlords of California’s bigger apartment complexes get some of the nation’s largest rent hikes this year? When averaging this year’s estimated rent in seven California markets and comparing landlord’s rates with 2019-21 levels, the spreadsheet found a range of rising rents: 6.9% higher in San Francisco and 4.3% in San Diego. The gains ranged from eighth-largest to 27th among the 46 markets tracked.

Glass half-full

Odd good news for California’s beleaguered renters: You’re no longer suffering alone.

Yes, the size of the rent check is still huge in California. But other apartment hunting patterns look somewhat middle of the pack when compared with the rest of the nation.

Projected U.S. monthly rents of $1,653 in 2022 are unsurprisingly dwarfed by California’s $2,492. But look at the change from 2019-21: rent hikes run 5.2% nationally and 5.5% in California. Not a huge difference!

Expect it to be a tough year to find an empty unit with vacancies at 2.9% nationally vs. California’s 2.8%.

Glass half-empty

Where big gaps show are who’s building and who’s paying up for old complexes — signs of landlord confidence in a region.

Nationwide, 400,000 new units are expected to hit the market in the 46 metros tracked for 2022 — that’s up 4% vs. 2019-21. California? Only a total of 25,400 — and that’s off 17%.

And when investors shop for existing complexes this year, what they pay per unit is projected to be $180,421 nationally — up 7.6% in ’22 vs. California’s $304,229 price — after only a 1.8% gain.

Let’s remember, real estate is all about jobs, jobs, jobs.

U.S. job growth is expected to be 2.5% this year, bringing employment to 100.6% of pre-pandemic levels. California’s higher 3.6% growth will still leave employment levels at 99.2% of 2019’s worker count.

What’s ahead

I should note that the industry’s “investment grade” properties frequently tracked in these forecasts represent an apartment niche that typically targets higher-income tenants. So, this is not a perfect benchmark for the broad rental market.

The ups and downs of any property market can’t be too far removed from how many paychecks are in a given community because people have to write the monthly rent check. The pandemic’s initial icing of the economy briefly created some “bargains” for California renters — if they had a job or could tolerate or risk a roommate in cramped living spaces while avoiding a contagious virus.

This 2022 national scorecard strongly suggests California rents are rising more so because of thin choices than a booming economy. And the state’s sluggish economic growth is why California landlords will see only relatively modest gains in the valuations of their rental properties.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com



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