Renting in San Diego

The Last Good Buy?

THOUGH COMMONLY regarded as the less-desirable way to acquire housing, renting does have its advantages. If the roof leaks, a renter calls the landlord, not the contractor or a repair service. Renters don’t pay property taxes, insurance or homeowner-association fees. If an Otay Mesa renter’s job moves to Carlsbad, the renter is free to move with it and avoid hour-long commutes. A renter doesn’t own his or her home—but he or she doesn’t owe a 30-year interest-bearing note, either.

Renters might have missed out on the Southern California equity bonanza, but a homeowner who sells a primary residence here has two options: Buy another San Diego property—which will, in all likelihood, be more expensive—or take a one-time “cash out” in a less-expensive ZIP code. Des Moines or Buffalo, anyone?

Good news: Compared to rents in comparable California cities, San Diego rentals are a bargain.

According to the most recent survey conducted by the San Diego County Apartment Association (SDCAA), the average rental rate for a studio apartment in San Diego County is $721; for a one-bedroom, $860; for a two-bedroom, $1,107; and for three or more bedrooms, $1,565. In the city, average prices are slightly higher. Compare the average three-plus-bedroom city rental rate of $1,686 to the $2,800-and-up monthly mortgage payment (30-year fixed) for a median-price San Diego home of about $500,000 (after 10 percent down).

“There is no question people who rent are getting an unbelievable bargain in this county,” says Alan Nevin, director of economic research for Market- Pointe Realty Advisors. “The rent rates here do not reflect the value of the apartment units. If the apartment complexes were to be built again, the rents would probably be $750 to $1,000 a month more because of the increased costs of construction.”

According to Novato, California– based RealFacts, which tracks apartment rental prices in California and the West, the average city of San Diego rent is $1,393, though neighboring cities in the county fetch considerably less. The average National City rent is $810; in El Cajon, it’s $957. SDCAA pegs the average rent in the county at $1,091.

With home prices trending upwards of 20 percent per year in recent years, it’s somewhat surprising a similar frenzy has not taken place on the rental front. The SDCAA says there are roughly 440,000 rental units in the county, and places the vacancy rate between 4 and 5 percent, so there are approximately 17,000-plus units available at any time.

The SDCAA considers the San Diego market to be in “equilibrium,” at a state in which there are enough vacancies to keep prices from rising precipitously but enough demand to keep prices from falling. Nevin says he expects average rent increases of no more than 3 percent in the next year. Factors that contribute to equilibrium include the fact that some renters graduate to home-ownership, and the rental population is in many respects in transition (students or divorcées, for example).

One might expect condo conversions to eat up existing rentals and drive prices up, but Nevin says 75 percent of all condo- conversion buyers were renters before their condo purchase. That’s one less apartment on the market, but also one less renter. Furthermore, only 3 percent of the county’s apartments have been converted to condos.

SINCE THE TURN OF THE CENTURY, vacancy rates here have tended to move up. In 2000, the SDCAA placed the fall vacancy rate in the city of San Diego at 1.4 percent. By the fall of 2005, it had risen to 4.3 percent.

Whether this kind of Goldilocks “not too hot, not too cold” market can continue indefinitely, though, is open to question. With the San Diego Association of Governments projecting another half-million San Diego County residents by 2020, housing of any kind should be at a premium. Since there’s not enough land to accommodate single-family homes for that many people, the Apartment Association says multi-family housing will be in demand, preferably along transportation corridors and close to jobs and shopping.

Nevin, however, points out there’s very little new apartment construction on the drawing boards.

“The numbers don’t work,” he says. “To make a rental project work today, you’d need rents on the order of $2,500 a month.” That will eventually happen, he says, before there’s much new construction. “It’s Econ 101,” Nevin says. “When rents somewhat parallel what they would be with new construction, there will be an incentive to build.”

The economist would also like to see San Diego become a little more like its northern neighbor.

“For a county of our size, we have a dismal supply of quality rentals,” Nevin says. “In Orange County, which is the same size in terms of population, they have an amazingly good supply of quality apartments, due to savvy developers like The Irvine Company and Sares Regis.”

It’s one thing to make a choice to rent rather than own, but some economists say the high cost of living, combined with wages that can’t keep up, is creating a “rental class” here.

“San Diego has the second-worst income-to-cost-of-living ratio among metropolitan areas in the state, behind only San Francisco, and it’s due to the high cost of housing, both for sales and rentals,” says Alan Gin, associate professor of economics at the University of San Diego. “We’re not talking about students, but working people who can’t afford to buy homes—teachers, firemen and policemen.”

On June 8, USD’s Burnham Moores Center for Real Estate (619-260-2256) holds a Workforce Housing Symposium to explore options for those who, as Gin says, “were previously considered middle class and can’t afford to buy houses here.”

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