California ZIP codes move from landlords to renters

California wins a silver medal for the worst homeownership rate in the country (just behind New York). Now, recent reports from tenants show the Golden State is going for gold.

Between 2011 and 2020, 101 national postcodes changed from proprietary to majority tenant. Of those 101, California renters outnumbered owners 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 tipping point heralds problems for burdened with costs tenants — tenants who spend more than a third of their monthly income on rent. As inflation eats away at workers’ wage gains since the pandemic, California’s low rental vacancy rate shows more residents vying for fewer rental units, driving up rental prices. This combination threatens to deprive many low- and middle-income Californians of access to the most essential equity-building vehicle available to them: home ownership.

The national trend of tenant majorities is reflected in major California metros. In 2019, Sacramento was one of 12 cities nationwide to become majority owned over the past decade, according to RentCafe. With two additional ZIP codes in Sacramento changing from proprietary to majority tenantSacramento’s owner-friendly badge of honor is slipping.

The trend isn’t stopping in Sacramento, as tenants flood the state’s major subways and change the tide in other areas. California zip codes with the fastest growing share of renters from 2011 to 2022 include:

  • 95134 (San Jose), whose share of tenants rose from 67% to nearly 82%;
  • 90013 (Los Angeles), whose share of tenants rose from 87% to almost 90%;
  • 90014 (Los Angeles), whose share of tenants rose from 94% to almost 98%; and
  • 94103 (San Francisco), whose share of tenants has increased from 81% to almost 85%, according to RentCafe.

Los Angeles is home to a glut of renters as one of the most crowded (and expensive) metros in the United States Over the past decade, apartment building in Los Angeles has exploded as the city tries to catch up years of chronic underproduction.

San Francisco ZIP Code 94130, also known as Treasure Island, wins the cake for the highest tenant share in California. This area is home to over 2,000 residents who are everything tenants, according to RentCafe.

After job losses and the unavailability of jobs during the pandemic, many San Franciscans along with the rest of California migrated to cheaper cities or became renters.

Related article:

California suburbs rock as Millennials and Gen Z become majority renters

Keep tenants on lease

The shift to tenants in these ZIP codes provides for a perfect economic and housing policy storm that is inundating California’s lower and middle classes.

Despite recent legislative changes at the state level, zoning remains fiercely controversial across California. Organized not-in-my-yard (NIMBY) Defenders have a stranglehold on local city councils over new housing, reducing the density they sorely need. Rigid zoning rules and combative NIMBYs leave little room for cities to meet their housing obligations.

After zoning comes housing. Highly populated metropolitan cities such as Los Angeles are still recovering from a long-term lack of housing starts. As a result, manufacturers are focusing on new multi-family residences (MFR) instead of single-family residences (SFR) to capitalize on the growing tenant population in California.

Related article:

Builder confidence plummets as recession sets in on housing market

Mortgage interest rates are also keeping homeowners at bay. The Federal Reserve (the Fed) has hammered interest rates with the federal funds rate through 2022 and shows no signs of slowing down.

This translates to a 7.08% increase over 30 years fixed rate mortgage (FRM) and 6.38% FRM over 15 years beginning the week ending November 11, 2022. Since rates are now rising long-term, tenants considering home ownership will have to wait until 2025 to find the low house prices of this market cycle. Even investors are observing this trend.

It’s no surprise that tenants who want to become buyers need the help of California lawmakers to achieve the American dream. To meet the demand, the California legislature must continue:

In the meantime, real estate agents looking to ride the wave of tenants and survive the still undeclared recession will need to consider diversifying into other means of earning income in the coming recessionary market, such as becoming a property manager.

To add building manager to your portfolio leverages your existing real estate skills and knowledge. The position also benefits from some recession insulation as housing is the last cut that consumers consider from their budget during lean times.

Related article:

Become a property manager in California

Also, consider safe investments such as government bonds or seek advice from a financial adviser to take the best strategic steps in the future. Creating a financial cushion is key to thriving in a recessionary economy.

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