Rents continue to climb in San Diego County as demand for rental units surges ahead of supply.
The latest survey by the San Diego County Apartment Association (SDCAA) shows a weighted average rent of $1,514. That’s up 20 percent from a year earlier, when SDCAA’s survey showed an average of $1,260.
The survey also found that the vacancy rate jumped from 2.7 percent a year ago to 4.1 percent this year.
A rise in both rent and vacancy rates seems counterintuitive, but the higher vacancy rate was likely the result of temporary factors, including the recent opening of several large projects in San Marcos, Kearny Mesa, Mission Valley and downtown. Recent military deployments may have also contributed to the vacancy rate. At 4.1 percent, the vacancy rate is still below the historical average of about 5 percent.
The semi-annual survey represents 18,314 rental units across a broad range of property sizes, ages and amenity levels. While it does not compare the same sample every time, SDCAA’s survey provides a valuable snapshot of trends in the rental housing industry.
The average rent for studio units was $974. One-bedroom units averaged $1,301. Two-bedroom units rented for $1,609 on average, and units with three or more bedrooms averaged $1,943.
The higher average rent reflects the ongoing struggle to meet the pent-up demand unleashed by an improving economy.
Population growth is a significant factor in the rising demand. The county’s population grew by an average of nearly 33,000 people annually over the past two years, according to SANDAG estimates. Some of this is natural growth — more births than deaths — while some of it is probably also driven by new employment opportunities that have attracted new residents from out of town.
At an average household size of 2.76, the county would need to add about 12,000 new units a year just to keep pace with this level of population growth. We’re producing less than half that, on average.
As long as the population continues to grow faster than the supply of new units, rents will continue to rise. We have no reason to believe the population will stop growing, so in terms of housing affordability, the best thing we can do is to build more units.
In addition to population growth, we’re also seeing increased demand from existing residents, especially younger adults. During and after the past economic downturn, many recent high school and college graduates lived at home with their parents. Others shared apartments, sometimes doubling up in bedrooms to save money.
Now that the economy has improved and the jobless rate has dropped, many of those individuals are now entering the market for housing, contributing to rising demand.
Meanwhile, development during the economic downturn was sluggish, constraining supply and limiting options for this new influx of renters. Other factors, such as high regulatory hurdles and the scarcity of available land, also limit the growth of the supply of rental units.
Fortunately, there are many units now in the development pipeline, and more are being added. The additions are expected to help stabilize rents and vacancies, both of which will again be in focus when SDCAA releases its next survey in December.