Rents on the rise as home prices slip
While homeowners were being stung by shrinking property values, renters across the state found themselves having to dig deeper into their pocketbooks in the third quarter, according to a report to be released today.
The average rent at larger apartment complexes in California increased 5.6% to $1,413 compared with a year earlier, according to a survey by Novato, Calif.-based research firm RealFacts.
Los Angeles and Orange counties remained the state’s most expensive market for rentals, while the San Francisco Bay Area posted the highest rent increases -- as high as 12.2% in Santa Clara County.
In the Inland Empire, which has suffered the worst of the housing market meltdown, renters caught a relative break as landlords raised rents at half the pace found in neighboring counties.
Although rents rose across the Southland, some analysts said they had been expecting to see even higher prices given the housing market meltdown, which turns many potential home buyers into renters.
“The supply and demand for the housing market are interrelated with the supply and demand of the apartment market,” said Delores Conway, director of USC’s Casden Real Estate Economics Forecast. Now, with tougher lending standards and a shaky housing market, “more people are choosing to rent rather than to buy.”
Nick Galvan, who heads the real estate and property management division at Westside Rentals, a Santa Monica-based listings service, said he had already seen higher demand lately for the 500 rental units he manages in Los Angeles County.
“You can ask for whatever you want as far as price is considered,” Galvan said. “It only takes that one person and that one person just seems to be a little more frequent right now.”
In Los Angeles and Orange counties, the average rent rose 5.2% to $1,630 compared with a year earlier, said RealFacts, which surveyed 12,048 apartment complexes of 100 or more units in 15 states. Its data are considered a reasonable gauge of rental market trends.
Meanwhile, the occupancy rate in the two counties slipped 0.8 of a percentage point to 95.6%. A complex with an occupancy rate of more than 95% generally is considered fully occupied.
Ventura and San Diego counties also posted rent increases of 5% or more.
In the Inland Empire, rents rose more slowly. Average rents in San Bernardino and Riverside counties recorded the weakest percentage growth in the Southland, increasing 2.7% to $1,159. Occupancy also was down, at 2.3 percentage points lower than at this time last year.
“The Inland Empire is hurting, though not if you’re a renter,” RealFacts analyst Chris Bates said. But, he cautioned, “renters shouldn’t take too much long-term joy in no rent growth because what that means is no one’s going to invest.”
One possible explanation for the region’s slump is rapid building of apartments that has left an excess supply of vacant units. In the 12-month period ended in June, about 5,000 new apartment units were completed in San Bernardino and Riverside counties, Conway said.
“That’s record breaking,” she said. “Landlords don’t have much opportunity to raise rents because renters have many more choices.”
Another aftereffect of the housing market downturn is an increase in the number of homes that are being leased rather than sold. In the Inland Empire, the availability of homes for lease could be affecting the drop in apartment occupancy rates, Conway said.
About a year ago, Deborah Davis moved to Southern California from New Jersey. Davis, a student at Cypress College in Orange County, decided to live in the Inland Empire because rents there were more affordable. She leases a three-bedroom, two-bath house in Corona for $500 a month.
“I’d prefer to live in Hollywood or Orange County, but I live here because it’s cheaper,” said Davis, 43. “You get more for your money.”
The leasing trend probably will continue and spill over into other counties.
Mark Verge, owner of Westside Rentals, said his company has been “getting more calls than ever” from real estate agents interested in leasing out homes because they have been unable to sell them.
“The Realtors might not like it, but the market is slow,” Verge said. “There’s going to be more inventory coming on the market. More homes for lease, more condos for rent. Things aren’t selling, so they’ve got to do something with them.”