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Monday, Jul 22, 2024
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Apartment Rents Show Modest Increase

REAL ESTATE: Supply, Demand Balance ‘Shifting to Renter’s Favor’

SAN DIEGO COUNTY – Almost halfway through the year, the apartment rental market in 2024 looks very similar to 2023 – slowly rising rents during what are historically the busiest months of the year.

Monthly rents in San Diego County edged up slightly in May – 0.6 %, nearly mirroring what’s happening nationally, where rental rates rose 0.5%, according to Apartment List, a national listing company.

The median rent for a one-bedroom apartment in San Diego County was $1,978 and the median rent for a two-bedroom apartment was $2,479 in June.

Despite the slight rise in rents so far this year, monthly rents are 2.9% below what they were a year ago.

Rob Warnock
Senior Research Associate
Apartment List

“We’re still witnessing the kind of softer rental market today, especially compared to where we were back in 2021 and 2022, when the national headlines were that rents were skyrocketing,” said Rob Warnock, a senior research associate at Apartment List.

“We’re just seeing the supply and demand balance shifting to favor the renter’s share of the market more than the owners. In San Diego, across the metro area, we’re looking at vacancy rates of around 6%, which was higher than they were in the years leading up to the pandemic.”

Construction Slowdown Coming

Demand remains strong, but Apartment List reported that there is an ample supply of new apartment buildings coming online, easing upward pressure on rents.

“That supply improvement is what’s creating this environment that’s really softening the rental market in a lot of places, including San Diego,” Warnock said.

As of June, 2024 is on pace to deliver for the most new apartments since 1986, according to Apartment List.

“There was a big spike in permitting activity in San Diego last year. In fact, the last four years or so have been relatively high,” Warnock said.

In San Diego County, 8,420 building permits were issued for new apartment construction, much of which is under way this year, representing a 44.5% increase over 2022.

“Really, we’re in the middle of a really impressive construction period right now,” Warnock said. “There is a massive number of apartment buildings being constructed and coming online today. “That’s been going on for a year and is probably going to go on for another year.”

That trend isn’t likely to hold as interest rates remain higher than many expected.
At the current pace, San Diego will issue building permits for 6,730 new apartments this year, a 20% drop from 2023.

“Looking forward in the kind of two- to five-year horizon, that construction activity is going to slow down, and we may reenter that market where prices can go up faster,” Warnock said, adding that it’s unlikely that the market would become as unbalanced as it was in 2021, when monthly rental rates were shooting up by 20% or more year over year.

“Short of another pandemic, I do not foresee the rent increases that we saw in 2021,” Warnock said. “That was really an unprecedented time for the housing market.”
Nevertheless, Warnock said that, “We’re still talking about rents that are extremely high. The sticker shock itself is still there.”

“It’s not like we’re suddenly becoming an affordable housing market. We’re just slowing down the rate at which it becomes unaffordable. It’s not cheap by any means, but surrounding this, you have to take a look at the other financial measures. It’s kind of multi-faceted,” Warnock said. “We’ve seen the county stay pretty strong in terms of employment, in terms of wage growth.”

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