California metros experienced rapidly risings rents in 2021. Much like the spike in costs for goods and services, rent is rising beyond the pace of worker incomes throughout the nation, especially here in the Golden State.

During 2021, rents have increased substantially. Nationally, the average rent for a one-bedroom increased 11.6% year-over-year, and the average two-bedroom rent increased 13.6%, as of November 2021, according to Zumper.

The main culprit behind 2021’s rapid rent increases is the continuous condition of demand being far greater than existing supply. This dynamic has gained even more traction during the pandemic, when supply chain disruptions, rising material costs, labor shortages and social distancing measures delayed construction. For reference, annual rent increases averaged just 0.6% in 2020 and 0.3% nationwide in 2019.

As of November 2021, year-over-year rents for one-bedroom units in California grew by:

  • 21% in San Diego;
  • 16% in Bakersfield;
  • 13% in Fresno;
  • 11% in San Jose;
  • 10% in Los Angeles;
  • 8% in Sacramento;
  • 4% in San Francisco; and
  • 2% in Oakland, according to Zumper.

In comparison, the year-over-year rents for two-bedroom units increased by:

  • 22% in Fresno;
  • 15% in Bakersfield;
  • 15% in San Diego;
  • 9% in Los Angeles;
  • 6% in San Francisco;
  • 6% in San Jose;
  • 6% in Sacramento; and
  • 4% in Oakland.

Inland metros, like Bakersfield and Fresno, experienced the steepest rent increases. Whereas, coastal cities where rent is already exceedingly high experienced slower growth. These rent changes across California reflect wide scale national trends, which have seen faster rent increases in what are considered more “affordable” locations.

Recovery in the inventory front

In terms of today’s high inflation — whether it be in goods and services or housing — the primary cause is a supply-and-demand imbalance. Worse, the price of rent is continuing to rise above the pace of incomes in California, forcing many to use bigger portions of their paychecks towards essential needs – food and rent. Then, little to nothing is left over for saving for a down payment or participating in the economy.

It’s important to note that Zumper suggests the rapid increase in rent seen in 2021 may be a market correction, related to significant home value growth. Thus, as the rapid home price increases of 2021 begin to cool off, this will likely be reflected in a leveling off in rents costs in 2022.

Demand will not outweigh supply forever, but still remains high in 2022. Balance will not come until California is able to correct the inventory shortage – caused by insufficient construction.

Supply chain disruptions continue, and construction delays are a major obstacle. The shortage of building materials is a contributor to construction setbacks, causing fewer new buildings to arrive on the market and meet demand.

For a healthy supply and demand chain, sufficient construction is a necessity. There are other hindrances in the way of achieving sufficient construction, including:

Without solutions to these problems, the problematic chain continues – leading to inadequate construction starts, subsequent issues in supply and demand, and thus, the cost of rent remains high, reducing everyone’s standard of living. Construction starts will most likely remain low until solutions are found – meaning stability in the rental market is not likely until around 2024-2025.