California deserves a silver medal in the nation’s worst homeownership rate (second only to New York). Now, recent renter reports show that the Golden State is out for gold.
Between 2011 and 2020, 101 national ZIP codes changed from homeowners to tenant majority. Of those 101, California renters outnumbered homeowners in:
- 92123 (San Diego) by 54.9%;
- 95833 (Sacramento) by 53.3%;
- 95842 (Sacramento) by 54.3%;
- 90803 (Long Beach) by 52.9%; and
- 95820 (Sacramento) by 51.2%, according to RentCafe.
This turning point means trouble charged Renters – Renters who spend more than a third of their monthly income on rent. As inflation eats away at workers’ wage increases since the pandemic, California’s low vacancy rate shows more residents competing for fewer rental units — pushing up rents. This combination threatens to cut off many low- and middle-income Californians from accessing the primary equity-building tool available to them: home ownership.
The nationwide trend towards majority tenants is reflected in the large metropolitan areas of California. In 2019, according to RentCafe, Sacramento was one of 12 cities across the country that have become the majority of homeowners in the past decade. With two additional zip codes in Sacramento to mirror those of homeowners tenant majoritySacramento’s homeowner-friendly badge of honor is slipping.
The trend doesn’t end in Sacramento, as tenants flood major subways across the state and change the tide in other areas. California ZIP Codes with Fastest Growing Share of Renters from 2011 to 2022 include:
- 95134 (San Jose), whose tenant share has increased from 67% to nearly 82%;
- 90013 (Los Angeles), whose occupancy rate has increased from 87% to nearly 90%;
- 90014 (Los Angeles), whose tenant share has increased from 94% to nearly 98%; and
- 94103 (San Francisco), whose tenant share has increased from 81% to nearly 85%, according to RentCafe.
One of the most populous (and expensive) metropolitan areas in the United States, Los Angeles is home to a flood of renters. Over the past decade, residential construction has boomed in Los Angeles as the city tries to make up for years of chronic underproduction.
Taking the pie for the highest share of renters in California is San Francisco’s 94130 ZIP Code, also known as Treasure Island. Over 2,000 people live in this area Everyone Renters, according to RentCafe.
Following job losses and job unavailability during the pandemic, many San Franciscos, along with the rest of California, migrated to lower-cost cities or became tenants.
California’s suburbs are flipping as Millennials and Gen Zs become renters
Retain tenants when renting
The shift toward renters in these zip codes spells out a perfect economic and housing storm to drench California’s lower and middle classes.
Despite recent legislative changes at state level zoning remains highly controversial throughout California. Organized Not in my backyard (NIMBY) Advocates enjoy a stranglehold on local councilors when it comes to new housing, pushing out much-needed density. Rigid zoning rules and combative NIMBYs leave cities little leeway to meet their housing element commitments.
After the zoning comes the housing. Major metropolitan areas like Los Angeles are still recovering from a long-standing lack of housing starts. As a result, builders focus on new things Apartment Buildings (MFRs) Instead of single-family homes (SFRS) to capitalize on California’s growing renter population.
Builder confidence collapses as the recession hits the housing market
Another thing that keeps homeowners in check is mortgage rates. The Federal Reserve (The Fed) has been hammering interest rates with the Federal Funds Rate through 2022 and showing no signs of slowing down.
This corresponds to a 30-year share of 7.08% Fixed-rate mortgage (FRM) and 6.38% 15-year FRM for the week ended November 11, 2022. With interest rates now rising over the longer term, renters eyeing home ownership will have to wait until 2025 to find the bottom of this market cycle in home prices. Investors are also observing this trend.
It’s no surprise that renters who want to become buyers need the help of the California legislature to make the American dream come true. To meet the demand, California lawmakers must proceed:
In the meantime, real estate agents ride the tenant wave and survive it quiet an undeclared recession, consider other ways of earning income in the upcoming recession, such as B. the activity as a property manager.
Add to property management to your portfolio leverages your existing real estate skills and knowledge. The position also enjoys some isolation from recessions as housing construction does last consumers cut their budgets during lean times.
Become a real estate manager in California
Also, consider safe haven assets like government bonds or seek advice from a financial advisor to make the best strategic moves for the future. Building a financial cushion is crucial to weathering the recessionary economy.
Keep up to date with tenant behavior (and your future customers) by subscribing to Quilix, the first tuesday Newsletter – Sign up for weekly updates on California housing market indicators!