Does rent control provide more housing for lower-income households?
- No (82%, 198 Votes)
- Yes (18%, 44 Votes)
Total Voters: 242
Does rent control provide more housing for lower-income households?
- No (82%, 198 Votes)
- Yes (18%, 44 Votes)
Total Voters: 242
Renter competition is heating up in the Golden State
Rental units are a hot commodity in 2022, and five California metros have made the list for 20 most competitive rental markets in the nation.
The high level of competition for rentals is directly due to California’s low rental vacancy rates.
Based on vacancy rates alone, most of California’s vacancy rates fell in the first months of 2022. California’s vacancy rates shifted to:
- 2.8% in San Diego, down from 4.1% in 2020;
- 3.0% in the Inland Empire, level with 3.0% in 2020;
- 3.4% in Los Angeles, down from 4.2% in 2020; and
- 3.5% in Sacramento, down from 4.1% in 2020, according to RentCafe.
San Francisco, which often bucks the trend, experienced increasing vacancy rates of 6.9% in 2022, up from 4.2% in 2020.
A healthy rental vacancy rate is around 5.5%. While vacancy rates were not healthy even in 2020, the rates in some of California’s biggest metros in 2022 are so low they are essentially zero.
In the same metros, for each unit for rent, there are many potential renters fighting for it. For every one listing, there are:
- 24 prospective renters competing in San Diego;
- 21 prospective renters competing in the Inland Empire;
- 20 prospective renters competing in Los Angeles;
- 16 prospective renters competing in Sacramento; and
- 8 prospective renters competing in San Francisco.
Editor’s note — RentCafe’s data was collected on market-rate, large-scale multi-family properties from January through April 2022.
The level of vacant properties present in a region is a barometer for the local housing market. The added heat from home prices hiking through most of 2020-2021 and interest rates jumping in 2022 has made buying an obstacle to renters who would otherwise pursue buying. Thus, those unable to compete are turning to renting. Low vacancies cause more competition, and more competition causes landlords to demand higher rents. Think of it as a domino effect.
Low vacancy rates signal need for more residential construction
Low vacancy rates are a red flag — a caution for California metros to recognize the demand of more residential housing.
Rental property vacancies represent the number of vacant units within California’s rental housing segments. The rental housing segment consists of properties which are:
- renter-occupied;
- rented and awaiting occupancy; or
- unrented and vacant and held out for sale or lease.
Rental vacancies have long been stretched thin due to California’s ongoing housing shortage. The inventory of homes for sale in California remains low, after previously reaching historic lows in late 2020 to early 2021.
Inventory is not available at a consistent level, which leaves would-be homebuyers at an impasse.
More construction will offset low vacancy rates — but when will that occur?
As demand for rentals outpaces new rental construction, the competition between prospective renters will only increase in the years to come. One solution for today’s problem of insufficient construction is loosening zoning regulations. Tight zoning results in:
- a lack of construction starts;
- further instability due to supply-and-demand imbalances;
- inflated prices; and
- low homeownership rates.
Real estate professionals have a stake in changing zoning regulations and development in their local communities.
More construction means more rentals to meet growing demand, thus curbing the imbalance for renters. When tenants are overpaying on rent, they are unable to save up for a down payment to buy.
When renters cannot buy, then they cannot become homeowners — one of the reasons for California’s consistently low homeownership rate. The homeownership rate averaged 54.6% in Q2 2022, up just barely from 54.2% in Q1 2022, according to the U.S. Census Bureau. This falls in line with the large portion of renters in California. More residential construction helps with the competition issue, but chalk up the long-term problems to the pace of incomes not keeping up with the price of homes.
Rental vacancies will remain low until residential construction meets demand. Residential construction starts will not reach their full potential until the recovery from today’s undeclared recession, with prices expected to bottom around 2025 and the recovery to pick up steam around 2027.
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