In January 2022, national asking rents continued to rise rapidly. What does this mean for landlords and tenants in the Golden State?

Nationwide, asking rents are up 15% from a year earlier as of January 2022, according to Redfin. In California, the year-over-year increase in asking rent is:

  • 32% in Riverside;
  • 24% in Sacramento;
  • 19% in San Francisco;
  • 19% in Oakland;
  • 16% in San Diego;
  • 10% in Los Angeles;
  • 10% in Anaheim; and
  • 9% in San Jose.

While rent in California increased in every major metro, some of the fastest rent increases are occurring in what are typically less costly, inland metros, like Riverside and Sacramento. These metros are popular with both homebuyers and renters due to the open spaces and room for growth, but rent is rising quickly — far more quickly than recently passed legislation on rent caps ought to allow.

Putting a cap on rent

Why are rents increasing so quickly here in California — especially when the state recently passed legislation to prevent huge rent spikes?

While most rental units are subject to rent caps, many of the units in areas with an abundance of new construction, like Riverside and Sacramento, are not. That’s because units constructed within the past 15 years are exempt from The Tenant Protection Act (TPA).

The TPA went into effect in 2020, with the goal to:

  • cap annual rent increases at 5% plus the rate of inflation for much of California multi-unit residential properties; and
  • require “just cause” to evict tenants in place for 12 months or more.

The rent caps favor tenants of older units. New buildings are exempt until they have been around for at least fifteen years.

Related article:

2020’s Tenant Protection Act Part I: Just cause eviction

The TPA enforces a limitation on rent increases for rental properties which do not fall under any exemptions.

For rent increases occurring on or after March 15, 2019, an owner of residential real property may not, over the course of any 12-month period, increase the gross rental rate for a unit more than the lesser of:

  • 5% plus the percentage change in the applicable Consumer Price Index (CPI); or
  • 10% of the lowest gross rental rate charged for that dwelling or unit at any time during the 12 months prior to the effective date of the increase.

A certain amount of the recent jump in rents can be attributed to the multitudes of exemptions put on rent caps. There are also smaller occurrences to account for — like people moving between units, which has remained popular for tenants seeking more space to take advantage of remote working during the pandemic.

The biggest obstacle fueling rapid rent increases across California is restrictive zoning regulations — a huge obstacle for creating new construction. With sufficient residential construction, rent caps are not even necessary. Even with the state’s new rent caps, California renters continue to overpay for rent, with rents far exceeding income increases.

Overly restrictive zoning is the force which fuels the housing inventory shortage and high demand. As long as construction falls below demand, watch for rents to continue to rise at a severe pace.

Related article:

A bump-up moment in California construction starts