The “Looking Glass” ponders economic and real estate trends through two distinct lenses: the optimist’s “glass half-full” and the pessimist’s “glass half-empty.”
Buzz: A migration out of urban California has created the nation’s biggest rent gains in Golden State counties far from the coast as bargain-seekers move inland.
Debate: When my trusty spreadsheet peeked inside ApartmentList data on rents for the 50 most populous U.S. counties, it found a curious split among the 10 California counties on the list. San Bernardino, Fresno and Riverside topped the rent-hike rankings with Sacramento at No. 9. Meanwhile in the six counties closer to the coast — Alameda, Contra Costa, Los Angeles, Orange, San Diego and Santa Clara — rents have, at best, moved sideways. What’s behind this divide?
Remember, the pandemic’s business limitations cost many tenants their jobs. Such economic pressures forced certain households to move to cheaper and less dense communities away from the coast.
Others sought new living arrangements such as doubling up with family or roommates. Some apartment dwellers with solid finances became homeowners, taking advantage of historically low interest rates. And, yes, an eviction moratorium kept another group in place — without paying the rent.
California’s inland counties have long been seen as an economic value, providing more affordable housing options for city dwellers.
One big hurdle of inland relocation — the long commute to work — has been shortened in the pandemic era thanks to work-from-home policies embraced by many employers.
Let’s look at 12 months of rent, the renewal period for most tenants. My spreadsheet shows us that inland landlords charged an average $1,610 a month over the year vs. an average $2,054 in coastal counties. Clearly, bargains are further from the Pacific.
Those significant inland discounts, mixed with the initial economic chill of the pandemic, altered the state’s rental market.
In the 12 months ended August 2020, rents averaged a 3.5% gain inland vs. coastal’s 0.1% dip, a relatively modest change as renters were just beginning to rethink housing.
Soon, however, the pandemic shift to inland regions’ cheaper prices and lower density out-muscled the lure of a sea breeze.
As the economy reopened and the virus lingered, rents jumped 12.5% inland in the 12 months ending August 2021 compared with a coastal decline of 1.9%.
And if rent moves are a popularity measure, well, then eastward ho!
Consider another measure of population flow, a study by Bloomberg News of postal “change of address” filings: The Inland Empire had 4% more arrivals than departures between March 2020 and February 2021. Sacramento arrivals were 3% more, and Fresno’s 1% larger.
Will these recent inland rent hikes force more cost-conscious folks to think about leaving the state?
Already, the pricey coastal market fared poorly in the change-of-address analysis of the pandemic era. San Francisco-Alameda had 8% more people moving out than in; San Jose-Santa Clara, 5% more departures; Los Angeles-O.C., 4% more exits. San Diego, the outlier, had 1% more ins than outs.
Please note how these inland rental markets rank among the 50 most-populated counties. They’re by no means cheap on a U.S. scale, and their rent hikes over two years outpace most peers in other states …
San Bernardino: $1,695 average rent past 12 months — 20th highest of the 50. It’s up 15.1% over 12 months, the No. 1 gain of the big counties. That followed a 2.8% gain in the year ended August 2020 — No. 8 nationally.
Fresno: $1,304 — No. 35; up 13.3% over 12 months, No. 2 of 50; after 5% gain previous year — No. 2 nationally.
Riverside: $1,810 — No. 13; up 12.3% over 12 months, No. 3 of 50; after 3.3% gain previous year — No. 4 nationally.
Sacramento: $1,630 — No. 21; up 9.5% over 12 months, No. 9 gain of 50; after 2.8% gain previous year — No. 9 nationally.
Still, they’re bargains vs. the coastal counties …
San Diego: $2,014 average rent past 12 months — No. 8 of the big U.S. counties. That’s up 5.3% over 12 months, the No. 15 gain of the 50. Rents gained 0.7% gain in the previous 12 months — No. 27 nationally.
Orange: $2,197 — third-highest; up 4.3% over 12 months, No. 21 of 50; after 1.3% gain previous year— No. 19 nationally.
Contra Costa: $2,046 — No. 7; down 0.3% over 12 months, No. 36 of 50; after 0.3% drop previous year — No. 40 nationally.
Los Angeles: $1,757 — No. 16; down 2.9% over 12 months, No. 41 of 50; after 0.6% drop previous year — No. 44 nationally.
Alameda: $2,053 — No. 6; down 6.6% over 12 months, sixth-weakest of the 50; after 0.9% drop previous year — fifth-weakest nationally.
Santa Clara: $2,254 — second-priciest; down 11.1% over 12 months, second-weakest of the 50; after 0.9% drop previous year — third-weakest nationally.
Remember, it’s been a crazy two years for the entire economy — from record low unemployment at 2019’s end to instant uncertainty in spring 2020 to today’s muddled rebound.
Large rent hikes have pruned inland California’s price advantage. The trusty spreadsheet tells us that typical inland renters two years ago enjoyed a 34% savings vs. coastal units. Today, that discount is 22%.
These inland counties weren’t ready for the renter influx — they’re been known for cheaper buying options. Homeownership runs 65% in the four inland counties vs. 55% by the coast.
These geographical rent gaps may further narrow as inland apartment developers don’t seem quick to respond. In 2021’s first seven months, the four inland counties saw multifamily building permits fall 13% vs. an 8% gain the six coastal counties.
Will these shrinking bargains nudge some renters back to California’s coastal population hubs — or force them to leave the state?
We should not overlook a big factor in what’s next for rents everywhere — the future of those work-from-home policies. Rental patterns could change if and when companies decide the downtown office is once again the place to be and whether remote workers will still get paid “big city” wages.
Homebuyers see similar trends. The inland counties had an average $389,000 median sales price for a single-family house in July — up 22% in a year — vs. the coastal counties’ $909,000 — up 19%, according to California Association of Realtors data.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at firstname.lastname@example.org
Source: Orange County Register