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San Diego Rental Prices Keep Climbing - What's Behind the Increases?

San Diego Rental Prices Keep Climbing - What's Behind the Increases?

San Diego Rental Prices Keep Climbing - What's Behind the Increases?

San Diego rents have been on an upward trajectory over the past decade, presenting a mounting affordability crisis for many residents. According to data from real estate tracking firm CoStar Group, average asking rents for apartments in San Diego County rose 44% between 2011 and 2021, more than double the national increase of 19% over the same period.

This rapid appreciation has taken a toll on both low-income residents and middle-class professionals. 

What factors are causing rents in America's Finest City to rise faster than the majority of U.S. metro areas? 

Here are some of the key drivers pushing San Diego rents ever higher year after year:

Limited Housing Supply 

San Diego has lagged behind other major cities in building enough new housing units to keep up with population and job growth over the past 10-15 years. Restrictive zoning policies, 'NIMBY' opposition to new development, and high construction costs have all hampered efforts to expand the housing stock. With supply constrained, any increase in demand translates into higher rents.

Between 2010 and 2020, San Diego saw its population grow by about 10% while net new housing units increased less than 7%, according to census data. That supply-demand imbalance puts upward pressure on prices. Until San Diego builds more market-rate and affordable housing, rents will likely keep rising faster than the national average.

In-Migration from Costlier Cities

San Diego's sunny climate and coastal location make it a magnet for transplants from pricier cities, especially tech hubs like San Francisco and Seattle where rents and home prices now dwarf San Diego's. While these new residents view San Diego as more affordable, their arrival still bids up rents.

U.S. Census data shows a net influx of 20,000+ domestic migrants to San Diego County annually this decade. Many of these newcomers have higher incomes or equity from selling homes in other markets, allowing them to pay more for rent than existing residents. This imported demand continues to drive rents up across San Diego.

Strong Local Job Growth

A robust job market also fuels rent increases. Between 2010 and 2020, total non-farm employment in San Diego County expanded by over 15% compared to the national growth rate of under 7% over the same period.

Many of these new local jobs are concentrated in high-paying innovation sectors like biotech, aerospace, and professional services. This influx of skilled workers has created its own demand for higher-end rental housing convenient to major employment hubs like Torrey Pines and Sorrento Valley. With competition stiff for units near top employers, landlords can charge escalating rents.

Lack of Affordable Housing Construction

San Diego has built relatively little affordable housing despite having some of California's highest housing costs. Per the latest Regional Housing Needs Assessment, the city of San Diego has just over 10,000 deed-restricted affordable rental units. With nearly 200,000 cost-burdened low-income households countywide, this limited stock forces many families to pay market-rate rents.

Until San Diego constructs more affordable units through subsidies, public land use, and incentives for private developers, lower-income renters will continue struggling with rents rising beyond their means. The lack of affordable housing construction exacerbates income inequality and displacement.

Investor Purchases of Rentals

Deep-pocketed investors buying up existing rentals has further lessened housing affordability in San Diego. Seeking steady returns and wealth preservation, institutional investors like private equity firms have acquired thousands of single-family homes, condos and apartment buildings for rentals, often sight unseen.

These corporate landlords can operate with longer time horizons and higher risk tolerance than mom-and-pop owners. With economies of scale, they've been raising rents aggressively after acquisitions to boost net operating income. Renter protections are often weaker with absentee corporate owners. More properties in the hands of faceless investment firms reduces affordability across San Diego's rental market.

Short-Term Rental Proliferation

The rise of short-term rentals (STRs) through platforms like Airbnb has likewise tightened the supply of long-term rentals in San Diego. Investors snapped up downtown condos and single-family homes near the coast to run as full-time vacation rentals. Removing housing stock from the long-term market pushed rents up across many central neighborhoods.

New regulations have aimed to curb STR abuses, but several thousand homes and apartments remain devoted to tourists rather than residents. Until San Diego returns more of these units to long-term housing stock, rents will stay inflated due to lower supply.

Pandemic Migration Trends

The Covid-19 pandemic intensified many existing drivers of San Diego's housing affordability crisis. As remote work expanded, affluent households from pricier metros like San Francisco and New York moved here for sunnier, lower-density lifestyles.

Despite a short-lived pandemic dip, rents soon resumed their upward march as migrant demand rebounded quicker than housing supply. National eviction moratoriums also forestalled new rentals from coming online, tightening inventory further. While the pandemic's impacts were complex, the net effect was to stretch San Diego rents higher.

What Does the Future Hold?

Most experts believe the above trends will keep San Diego rental prices on a rising trajectory over the next 5+ years. Continued strong job growth, paired with lackluster housing construction and permitting delays, paints a picture of inadequate supply amid soaring demand.

Community resistance to density makes quick housing stock expansion unlikely. And San Diego lacks the ultra-high rents of tech hubs that would stem inflows of higher-income households from pricier cities. For many middle- and working-class renters, the local affordability crisis may worsen absent a major intervention.

To change this rental forecast, San Diego must pursue a slate of aggressive reforms:

  • Upzoning neighborhoods near transit to allow greater multifamily density
  • Slashing permitting and construction costs that hinder new development
  • Funding dedicated affordable housing on public land
  • Incentivizing private projects with lower-income units
  • Enforcing STR regulations to return homes to long-term rentals
  • Building social and transitional housing for homeless residents

The next decade will determine whether San Diego can curb rental prices and become a more inclusive city. The future remains unwritten if we dedicate ourselves towards justice and shared prosperity.

If you are a landlord looking for assistance managing your San Diego rental properties or a tenant inquiring about available rentals, reach out to Harland Property Management. Our local experts can provide tailored services and advice to help landlords maximize returns and help renters find quality housing, even in today's challenging market. Contact us today to take control of your rental future in San Diego.