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The San Diego Rental Market Boom

By Daniel Halimi – Delt Law Clerk – Cal Western Class of 2014

The aftershocks that accompanied the housing crisis are now being felt in the rental market, especially here in San Diego. During the housing crisis, waves of foreclosure had pushed many homeowners into the rental market, increasing demand for rental properties.[1] As the real estate market recovers, greater demand for single-family housing amidst a low housing supply is making it more difficult and more expensive to purchase a home, locking out many first-homeowners and pushing them into the rental market.[2]

The increasing job market in San Diego is also boosting demand for rental units.[3] As the job market improves, more and more people are looking to rent in San Diego, driving demand even higher.[4] According to Marcus and Millichap’s 2013 annual forecast, employers are expected to hire 36,000 workers in 2013, a 2.8 percent increase over 2012 figures.[5]

This flood into the rental market has saturated the supply of rental units, leaving San Diego with the sixth-lowest vacancy rate in the U.S.[6] The high demand and low supply of rental units in San Diego has even sparked Craigslist bidding wars, leading tenants to outbid each other at prices higher than advertised in an effort to secure an apartment.

Although developers are expected to build 2,600 new apartment units in San Diego in 2013, many analysts believe projected construction is not enough to satisfy the growing demand for rental units in San Diego.[7] Accordingly, rents in San Diego are expected to increase as construction races to catch up with demand.[8] This high demand for rental properties, combined with low vacancy rates, has been continuously driving rents in San Diego higher.[9] Analysts expect apartment vacancy rates to drop to 4.3 percent in 2013, among the lowest in the U.S.[10] As a result, rents are expected to increase 4 percent in 2013 and more than 31 percent by 2015.[11]

 


[1] Tenants Feel Pinch of Rising Rents, The Wall Street Journal (Dec. 26, 2012), http://online.wsj.com/article/SB10001424127887323300404578203683873201470.html.

[2] Erik Anderson, First-Time Homebuyers Return to San Diego Housing Market (Dec. 4, 2012), http://www.kpbs.org/news/2012/dec/04/first-time-homebuyers-return-san-diego-housing-mar.

[3]Apartment Research Market Report, Marcus & Millichap (Second Quarter, 2013), https://www.marcusmillichap.com/services/research/webreports/SanDiego/Apartment.aspx.

[4] Lou Hirsh, Activity Swirls Around the Multifamily Market, San Diego Business Journal (May 6, 2013), http://www.sdbj.com/news/2013/may/06/activity-swirls-around-multifamily-market.

[5] Id.

[6] Lilly Leung and Roger Showley, San Diego Rents Expected to Rise This Year, Union Tribune (May 13, 2012), http://web.utsandiego.com/news/2012/May/13/san-diego-rents-expected-rise-year.

[7] Steve Cook, Rental Outlook 2012: The Good Times Roll On, The Bigger Pockets Blog (Dec. 28, 2011), http://www.biggerpockets.com/renewsblog/2011/12/28/rental-outlook-2012-the-good-times-roll-on.

[8] Marcus & Millichap Supra, note 3; see also Wall Street Journal supra, note 1.

[9] Wall Street Journal supra, note 1.

[10] Hirsh Supra, note 5.

[11] Marcus & Millichap Supra, note 3; see also Cook Supra, note 9.

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