Even in a pandemic, Sacramento rents are spiking again. Why the Bay Area is to blame
It’s yet another sign of a new Bay Area migration to the Sacramento region: Apartment rents in the ultra-expensive San Francisco area plummeted this summer, while increasing in the capital region.
The unusual twist is happening amid a disruptive coronavirus pandemic that has Bay Area refugees seeking lower-cost living and more space.
Some of those refugees lost their Bay Area jobs due to COVID-19 shutdowns, real estate and economic analysts say, but others are leaving the Bay Area because their employers have given them the green light to live outside the area and work from home indefinitely.
Rents in downtown San Francisco dropped 4% the first half of this year and nearly 5% in Silicon Valley, while the Sacramento four-county region saw rent increases of 3.4% this summer over last summer, according to an analysis of RealPage real estate data by Colliers International, a real estate brokerage and analysis.
Another analyst, Zumper, says even more recent mid-October numbers indicate the average one-bedroom apartment in San Francisco has dropped a whopping 22% since October of last year.
The rent differential between the Bay Area and the Central Valley, though, remains huge.
“We benefit from relative affordability compared to the Bay Area,” Sacramento city community development head Tom Pace said. “For people who want a big city outside the Bay Area, Sacramento is the closest option.”
San Francisco average rents were $3,349 per month this summer and early fall, according to Colliers. That is more than double the Sacramento market average of $1,563. Average rents in Silicon Valley and the Peninsula between San Francisco and San Jose were about $3,000.
That disparity helps explain why Sacramento is third in the country in net migration during the pandemic (behind Jacksonville, Fla. and Salt Lake City) among metropolitan areas, according to a LinkedIn study. In contrast, the Bay Area had the second highest net out-migration numbers nationally.
Colliers reports this month that 47% of Bay Area residents say they are considering leaving.
Bob Shanahan, an analyst with Colliers in Sacramento, said the pandemic accelerated a Bay-to-Valley migration trend that has been happening for several years. “So many tech employees no longer have to work in the office. There is less reason to stay in the Bay Area.”
While that may be good news for the Sacramento economy overall, it is troubling for many residents who have struggled to pay rents due to loss of income since COVID-19 hit in March.
Rents high, not enough affordable housing
Rents in Sacramento have been among the fastest rising in the country over the past decade. Sacramento suffers from a lack of housing for low- and moderate-income earners, and does not yet have a solid plan for producing that housing.
With the specter of more layoffs from the ongoing coronavirus economic impact, housing advocates say they fear the worse is to come.
“That is the crossroads we are at right now,” said Kendra Lewis, head of the Sacramento Housing Alliance. “Now we see rents getting high and not enough inventory for people. Where are they going to go? A potential recession is frightening.”
For now, most renters are protected from eviction due to emergency measures enacted by the state of California and some cities, including Sacramento. In California, tenants who pay at least 25% of their rent through Jan. 31 will be protected from eviction. Residents who do not pay at least that much rent will be at risk of eviction at the start of February.
The city of Sacramento passed a rent control measure that went into effect in July of this year, limiting most landlords from raising the rent more than 5% plus the cost of living increase per year. A tougher rent control ordinance, Measure C, is on the city’s November ballot. If passed, it would supersede the city’s existing ordinance.
In the long term, Ansel Lundberg, co-chair of House Sacramento, says cities need to allow denser and more affordable housing to be built, including duplexes and courtyard housing that has a familiar look, but provides smaller units for individuals and families at lower rents.
Notably, despite rising rents in general in the Sacramento region, rents are down this year in Sacramento’s central city.
Rents dropped more than 3% this spring, right after COVID-19 hit, compared to Apirl, May and June of 2019. In the three summer months since then, though, central city rents crept up one-half of a percent, Colliers reports.
Despite that, Sacramento’s central city in particular is seeing an apartment construction mini-boom this year, some of it fueled by outside investors who believe Bay Area residents will continue to move to Sacramento, prompting Bay Area companies to locate offices here.
“We see a jurisdiction that is embracing urban renewal as a positive, a market that is benefiting from out-migration from the Bay Area,” said Riaan de Beer, whose Canadian company, Anthem Properties, bought and tore down a row of buildings on the 1000 block of J Street downtown to construct a seven-story, 153-unit apartment complex.
“Those are strong market fundamentals. It is a smaller market that we can get our arms wrapped around more easily. Being smaller is to Sacramento’s benefit.”