Annual rent growth is rising at its fastest pace in years, according to Zillow. Nationally, rents were 2.8% higher than a year earlier in February 2018. Here in California, the increase is sharper.

Annual rent growth is:

  • 8.2% in Sacramento (the highest in the nation);
  • 6.7% in Riverside;
  • 4.2% in Fresno;
  • 3.9% in Los Angeles;
  • 3.9% in San Diego;
  • 2.0% in San Jose; and
  • 1.9% in San Francisco.

Aside from San Jose and San Francisco, California’s biggest cities are seeing higher-than-average rent growth compared to the rest of the nation.

The difference between San Jose/ San Francisco and the rest of the state is likely due to a number of laws passed in the Bay Area to provide more housing, including encouraging casitas and reducing parking requirements. A number of strict rent control ordinances also exist in the Bay Area to keep rent increases down.

Across the rest of the state, rents are increasing at their present pace due to a supply and demand imbalance. More renters and low rental vacancies equals a higher rent paid for the same unit.

At the end of 2017, the statewide rental vacancy rate was 3.4% in California. After the 3.2% vacancy rate experienced at the end of 2016, this was the lowest rental vacancy rate in decades, according to the U.S. Census.

The lack of rental options is a problem for renters, who already regularly pay half of their paycheck on rent. It’s also a problem for the broader economy, as renters have less money left-over after rent to spend on goods and services, or save up for a down payment on a home purchase.

Construction needs to catch up to our growing population

To even out supply and demand, builders need to provide more rentals. This will see vacancies rise to a healthier level, which is around 5.5% in California.

Multi-family construction has led our state’s economic recovery with more units started than for single family residences (SFRs). This has been important not just for renters, but for the urban, coastal communities where renters are hoping to live near to jobs and amenities.

But it hasn’t been enough. Despite the increase in construction, the number of new units has lagged behind population growth, which has fueled this oversized demand for rentals. As a result, homelessness has spiked in California’s largest cities.

The good news is more rental construction is coming, and soon. A package of affordable housing laws was passed at the end of 2017, with the main goal to encourage more low- and mid-tier housing to be built in California’s most populated areas. This will likely see more rental construction arrive in greater numbers — bringing with it a slowdown in rent increases — by the end of 2019 and into 2020.

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