Sacramento residents faced the second highest rent increases among major California cities in the last year, continuing a five-year upward swing, a new analysis shows.
But the news is not entirely bad.
The capital city’s 2.5 percent yearly increase as of August was tame compared to earlier years when rent increases were among the highest in the nation, including nearly 10 percent last year, according to national online broker Apartment List.
Local real estate watchers say a recent increase in new apartment construction appears to be moderating Sacramento’s rising rents, bringing them closer to normal range after several superheated years.
“We’re definitely seeing an easing,” said Bob Shanahan, a Sacramento-area rental market analyst for Colliers International, a global real estate services and investment management company. “It’s kind of a return to normal. The increases in 2016-2017 were unsustainable.”
Colliers’ own analysis of the four-county metro area – Sacramento, Yolo, Placer and El Dorado – found rents to be 3.8 percent higher during the April-May-June period this year than during the same months in 2017.
“Sacramento still ranks 9th among the top 50 U.S. metros in rent growth after averaging 7.4 percent per year from 2013 to 2018,” the Colliers analysis says.
The latest reports come amid ongoing rent control debates locally and statewide. Proposition 10 on the November ballot would repeal the existing Costa Hawkins Rental Housing Act, allowing cities more latitude to control rents.
Sacramento city officials, meanwhile, face pressure to find affordable housing for the lowest-income residents. Of the 5,500 housing-unit building permits issued by the city between 2015 and 2017, only 98 were for apartments or houses that people earning minimum wage or a little higher could afford, according to a city review this summer.
That leaves the city less than 10 percent of the way toward its 2021 housing target for low- and very-low income households, based on goals set by the Sacramento Area Council of Governments.
Sacramento Mayor Darrell Steinberg on Tuesday proposed a limited set of rent controls: A 5 percent rent increase cap for three years that would only apply to units that are at least 20 years old in buildings with at least five units.
Builders immediately opposed the mayor’s plan, saying rent control will stifle apartment construction.
Several other council members announced a competing plan that they want the council to pass this year.
That proposed ordinance, pitched by Eric Guerra, Steven Hansen and Rick Jennings, would require landlords to offer 18-month leases to new tenants, have a third-party mediator settle rent increase disputes and create a fund to help pay for affordable housing projects.
The new Apartment List data show that Sacramento and valley neighbors to the south, Fresno and Bakersfield, remain the least expensive major cities in California for renters to live, more aligned with rent levels elsewhere in the U.S. than with coastal California.
Apartment List set the average rent in the city of Sacramento in August at $1,210 for a two-bedroom unit. Colliers, which looked at the four-county area, put the average local rent at $1,374 during a three-month period this spring.
San Francisco has the highest average rent in the state this summer, $3,100 per month for a two bedroom apartment, followed by San Jose, where two-bedroom unit rent averaged $2,640, according to Apartment List.
Apartment and other housing construction came to a near complete halt during the mortgage meltdown and recession several years ago. Analysts say that lack of new units, coupled with a surge of new arrivals, some of them young emigrees from the Bay Area, caused Sacramento rents to rise quickly since 2013.
Shanahan of Colliers International said Sacramento has gained cachet among millennials in their 20s and 30s as a “cool city to settle down in.”
In the last year, rental construction has increased in the region. Colliers reports that 886 new rental units were added in the four-county metro region in the first half of this year, and another 1,322 are expected to open by the end of the year.
Those include large projects such as the Ice Blocks and The Hardin in downtown Sacramento as well as big projects recently opened or under construction in Rocklin, Folsom and West Sacramento.
The numbers of new housing units, however, do not yet meet the demand, said economist Jeffrey Michael of the University of the Pacific in Stockton, suggesting rent will likely continue to rise. Colliers forecasts a 2 to 3 percent increase per year.
Colliers International, in its latest rental report, noted that occupancy rates in the region were still very high at the midpoint of this year – over 96 percent – meaning that apartments continue to be at a premium, allowing developers and landlords to tilt toward higher rates.
Rents for many new units often top $2 per square foot. One of the region’s more recent openings, the 260-unit Garnet Creek Apartments in Rocklin is advertising its least expensive one-bedroom, 795-square-foot units at $1,720 a month.