Rents rise in sluggish home-buying market

Rents rise in sluggish home-buying market $1,241 average reflects biggest climb in 4 years

By Emmet Pierce

September 22, 2006

The ongoing slump in San Diego County home sales appears to be benefiting the region’s landlords.

A 3.81 percent increase in the past year to an average rent of $1,241 is the biggest gain in rental rates since September 2002, when average rents increased by 5.68 percent, according to a recent survey by Market Pointe Realty Advisors. It compares with annual increases of 3.2 percent in September 2005, 3.12 percent in 2004, and 3.64 percent in September 2003.

Renters who otherwise might buy homes are biding their time as home prices flatten, said Bob Pinnegar, executive director of the San Diego County Apartment Association.

"I think it is a reflection of the slowdown on the purchasing side," Pinnegar said. "If I was in a situation where I was going to buy my first home, I would hold off and see what will happen with the market. People are going to start buying as prices drop."

Russ Valone of MarketPointe Realty Advisors agreed that the sluggish real estate market is a factor in the average rent increase. Another reason is that rising mortgage interest rates are making it more difficult for renters to get home loans, he added.



The home market continued to cool last month, with overall prices dropping 2.2 percent from August 2005, according to DataQuick Information Systems. It was the third straight month of year-over-year price declines and the slowest August in terms of sales since 1997.

In contrast, the average monthly rental rate has risen $30 in the last six months. The countywide apartment vacancy rate dropped to 1.84 percent from 3 percent six months ago, MarketPointe reported.

"The current rental rate average is 2.47 percent higher than it was as of our March 2006 survey and has increased 3.81 percent in the last 12 months." Valone said in his report.

In coming months, the year-over-year rental rate increase may exceed 4 percent, he added.

Some blame condominium conversions for rising rents. Valone said conversions have removed about 9,500 apartment homes from the rental pool over the past three years. He insisted that the impact on the cost of renting was minimal, however. Most converted apartment units have been sold to renters, removing them from the apartment market, he said. Richard Lawrence, president of the San Diego Affordable Housing Coalition, disagrees. He says conversions are a big factor in rising rental costs.

"Initially we were worried about dislocation," Lawrence said. "Were folks going to be moved out? Even in cases where tenants got notices of intent to convert, we would see rent increases. Now that the market has cooled, those folks intending to convert have put their units back on the market, but at a higher rent."

Valone said the supply of new apartments hasn’t kept pace with demand.

"While there have been nearly 18,000 new apartment units added to the marketplace since April of 1998, over the past six months only 242 new units were released," he wrote. " . . . A total of only 592 units were added to the marketplace over the past year, marking the lowest addition to the market in the last eight years."

The MarketPointe research firm surveys rental complexes of 25 units and more. In such apartments, the average rental rate has increased by 7.12 percent over the last two years, and 10.46 percent over the last three years. The average unit size has remained stable, gaining just 2 square feet since September 2002, Valone reported.

Emmet Pierce: (619) 293-1372;