BobS
Rents are a market price, and as such are set by supply and demand. One the supply side is the current stock of vacant houses and apartments; on the demand side are the current searchers.
The vacancy rate is the best predictor of future rent trends, with rates below 5% stimulating rent increases above prevailing inflation rates. Vacancy rates of above 8 – 10% will likely halt any rise in rents. San Diego’s vacancy rate is now about 5%, up from about 3 1/2 percent a year or two ago.
Residential rents move with glacial speed for several reasons. Landlords correctly hate vacancies, so tenants sometimes go for years with small or no rent increases, even though the landlords’ expenses go up with inflation. This makes it a good deal for tenants who stay put.
Very seldom do rents increase rapidly. In rare circumstances such as in the dot-com era in the Bay area, they rose rapidly, as was predicted by the rock-bottom vacancy rate first. After the bust they fell, but not to previous levels.
Rents rarely fall, and then by very little. In San Diego’s deep early 1990s recession when our high-paying jobs dried up and people fled SoCal rents barely fell. Landlords understandably want to avoid actual rent cuts–hard to come back later and ask for hikes. Plus, how do apartment building owners offer lower rents to newcomers without cutting rents to existing tenants? As a result, the effective cost of such a policy would be huge. Better to disguise the rent decrease by offering 13th month free on a one-year lease or some such subtrefuge.
Look for San Diego’s rents to rise about the rate of inflation for the forseeable future. Any other result will be preceeded by a marked change in the vacancy rate. It is purely a free market phenomenon.
