What's making San Diego County rents go up?

Experts across the nation point to three key economic drivers

By Lily Leung

Thursday, March 31, 2011 at 6 a.m.

 

San Diegans are paying slightly more rent in March than a year ago — driven by minor traction in the local job market, an uptick in distressed homeowners having to lease again and more young adults leaving Mom and Dad’s nest after a brief post-college stay.

The average monthly rent in the county increased 1.5 percent, to $1,335 in March from $1,315 the same time last year, according to numbers from a twice-yearly rental report from MarketPointe Realty Advisors, a San Diego-based data company.

The report also showed the average vacancy rate in the county is 5.1 percent, up from 4.8 percent one year ago. Alan Nevin, the company’s director of economic research, said an autumn infusion of 679 units from failed condo project Vantage Pointe in downtown San Diego fueled the vacancy increase. Despite that, rental experts say, a 5 percent vacancy rate is fairly healthy.

The San Diego rental market is stable and will likely see steady increases this year tied with the normal rate of inflation, according to property managers and data analysts. Peter Dennehy, a vice president of John Burns Real Estate Consulting, says the local market echoes what’s happening nationwide: Rents are increasing as an anemic economy gains strength and fewer people can afford to buy a home. The consulting company, which has an office in San Diego, projects rent locally will jump 30-plus percent within five years.

Similar increases are expected in other areas, including Seattle and Boston.

“People are out shopping,” said apartment manager Luis Leguizamo, who recently tacked on $25-30 a month for residents at the Loma Portal Apartments, near Point Loma.

“The economy is somewhat stimulated,” he added. “People are in the position to move and consider paying a higher rate.”

Here’s a look at some of the factors that are driving up rental rates:

The local economy

More Californians are getting jobs, part of what’s helping the rental market.

The state created almost 100,000 jobs in February, mainly in areas such as technology and construction. San Diego’s job count went up by 2,000.

Though many of the jobs that were lost during the recession have yet to be recouped, “things are firming up in the labor market,” said Dennehy, of the real estate consulting firm.

Supply is also coming into play. He said there’s little apartment construction in the county, which over time could be an issue in an area popular for its favorable weather, beaches and amenities.

During the past five years, San Diego has added about 1,000 new rental units each year. This year’s projection is less than half of that, at 402, Dennehy said.

“New apartment construction requires land and financing, and in this recession, there is not a lot of land or financing,” he said.

Distressed are renting

Many homeowners in San Diego struggling to make their mortgage payments have shifted back to renting because it’s more affordable, and with a foreclosure on their record, it’s likely the only option.

It’s unclear how many are leasing again. But nearly 12,000 San Diegans lost their homes last year, according to analyst firm DataQuick Information Systems.

Homeowner Crystal Dooling and her young family, who live in North County, are in the process of foreclosure, spurred by overwhelming medical debt. They’re also hunting for a rental, which can be a struggle for a mother of three and working father. What makes the task harder is the future red mark on their financial records.

“A Realtor tells me, ‘I’m going to have a hard time pitching you as a tenant. I don’t know if people are going to take a chance on you,’ ” Dooling said.

Property managers throughout California have said they’re willing to work with would-be renters such as Dooling to find a proper home. All they ask is that prospective tenants be clear and forthcoming about foreclosures or defaults.

Eric Wiegers, of the California Apartment Association, said some landlords might charge higher security deposits to these tenants.

By state law, the maximum deposit is two months’ rent for an unfurnished rental and three months’ rent for a furnished one.

“People are definitely doing that,” Wiegers said. “It’s a legitimate practice.”

Leaving the nest

Another driver of higher rents is a trend called unbundling. This happens when college grads, often without jobs, return to their parents’ homes for a year or two, and then after saving up for a year or two, move out.

“As the job market gets better, folks who were forced to double up can now live alone,” said Nevin, of MarketPointe.

Chris Brown, a vice president at rental site Apartments.com, says a primary indicator of unbundling is an increase in searches for one-bedroom rentals. Searches for one-bedroom apartments in San Diego on the website rose 15 percent from February 2010 to February 2011.

If they’re not looking for a one-bedroom home, many young adults are bundling up with other young adults to save money, yet be independent from their parents.

Carmelina Castillo and her boyfriend both left their parents’ places and moved into the Vantage Pointe complex in November. She got a job as a purchasing manager of a clothing store, they were financially ready and her boyfriend kept getting edged out by cash investors while house hunting. “Our down payment wasn’t big enough,” Castillo said. “It wasn’t feasible for us, so we thought it’d be better to rent and enjoy the downtown life.”

Source: SignOnSanDiego