Rent prices drop 7.7% in San José, but mainly because of a drop in demand for luxury rentals
Apartment rental prices in San Jose are dropping, but that might not do much to help tenants struggling to make ends meet in the local economy affected by the pandemic.
The average rent in 2020 was $ 2,531 per month, according to a new report of the RentCafé apartment search service. That was down 7.7% from a year ago, one of the biggest drops among the country’s 30 largest cities.
But much of that drop is due to lower occupancy rates in the high-end portion of the apartment market, said Doug Ressler, senior analyst and business intelligence manager at Yardi Systems, Inc., the company. mother of RentCafé. Rather than leaving the area, many people who move out of these luxury apartments, known as Class A properties, are looking to move into places like single-family homes or to move into their second home because they can afford it.
Meanwhile, rents are more stable in lower-end properties as there aren’t enough to meet the growing demand for cheaper apartments, said Matthew Reed, policy manager at Silicon Valley at Home. , a non-profit affordable housing advocacy group.
“The difference between Class A luxury apartments and the experience they have in terms of vacancy rates and falling rents is very different from a still relatively tight low-end market where people with low incomes haven’t seen the same level of rent cuts, ”Reed said. “It is a real concern because this is where the economic difficulties are the most important. We don’t think the pandemic and recession have so far relieved rents where the need has always been greatest. “
Several of the country’s largest cities have experienced a tenant exodus this year. Many have relocated for safety reasons, hoping to avoid dense cities during the pandemic, or to take advantage of their employers’ newly liberal remote work policies to work from cheaper locations. These trends have contributed to double-digit year-over-year rental declines in Manhattan and San Francisco.
But rather than seeing existing tenants abandon it, San José is attracting new ones, according to the RentCafé report. While New York City has seen a 25% increase in the number of tenants leaving the city year over year, San Jose has seen a 14% decline in the number of tenants leaving. And while San Francisco saw a 31% drop from 2019 to 2020 in renters who moved there from other locations, San Jose actually saw a 16% increase.
Likewise, while 16 of the 30 most populous U.S. cities reported reductions in tenant requests, San José saw those requests increase by 7%.
Instead of relocating from San Jose, the big change in the local market has come with tenants moving from location to location in San Jose. This type of movement grew by 55%, according to RentCafé, by far the largest increase among the top 30 cities in the country.
Much of this movement has come from people leaving luxury apartments. San Jose experienced low occupancy levels for Class A properties, which represent a larger percentage of San Jose’s rental market compared to other national markets, according to Ressler. In contrast, Class B and C properties, which include cheaper, less desirable and older properties and buildings, have not been as affected by the pandemic. Middle- and low-income people who rent such properties generally have less financial ability to move than those who rent high-end properties, he said.
“Luxury tenants are able to react to financial and employment situations with regard to housing, prices and health recovery,” Ressler said. Residents of Class B and C properties, he said, “are not as adaptable or mobile.”
As the high end of the rental market softened, the low end became more competitive, housing experts said. Those who lived in such housing and who could afford it stayed behind. Meanwhile, those who have faced unemployment or declining wages thanks to the recession caused by the pandemic have sought lower-cost housing.
“Right now, the data shows a very tight housing market at the bottom of the ladder,” Reed said.
Things are expected to stay that way for a while, experts said. San Jose only recovered 37% of the jobs lost in March when the pandemic-related stay-at-home orders first took effect, Ressler said. Its unemployment rate is still at 7.2%, he said. As long as this is true, competition for lower cost housing will continue to exist. Meanwhile, new low-cost housing could take years, he said.
“New supply will remain low as investors assess the transition from Class A properties to more affordable properties to meet demand,” Ressler said.
Rent prices will likely continue to fall as long as the local economy remains depressed, he said. But it probably won’t be very comforting for those hardest hit by the pandemic, said Joshua Howard, spokesperson for the California Apartment Association.
“Lowering rents alone will not solve the problems faced by tenants who were unable to pay their rent due to COVID nor will it help landlords who are struggling to pay their own bills after months without rental income of tenants financially affected by the pandemic, “he said.
Contact Lloyd Alaban at [email protected] or on Twitter @lloydalaban.