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High rent prices won't change despite Sacramento adding more apartment units

The U.S. average apartment completion rate was more than five times the Sacramento rate.

Sacramento closed out 2017 still holding the title for having one of the worst markets for apartment construction in the nation.

Last year, only 593 units were completed in Sacramento, ranking it No. 90 of the 96 markets analyzed by Yardi Matrix.

That's 145 units less than the number of units Yardi Matrix projected to be completed by the end of 2017.

Sacramento is significantly falling behind in apartment construction rate while the rest of the country experiences a steady completion rate increase. In fact, the U.S. average completion rate was more than five times the Sacramento rate, according to a December Yardi Matrix report.

The Sacramento building rate is alarmingly slow for a metro that will need to add 32,000 new apartment households by 2030 to keep up with the demand, according to apartment data website, We Are Apartments.

Sacramento would need to build at least 2,667 new units a year until 2030 to keep up with the demand. If the Sacramento area had a completion rate to match the current U.S. average, the rental market would greatly decrease in pressure.

In 2017, the Capitol City had the lowest completion rate in recent years despite the high demand for more units. Last year, Sacramento was crowned the fastest-growing city in California by the state Department of Finance (DOF). New residents flooded into the area as the city experienced a shortage of rental units.

The influx in population and lack of housing created a just the right mix for rent prices to skyrocket in the region. In fact, Sacramento had the fastest-growing rent in the country in 2017, with an 11 percent increase from the same time the year prior.

This year, the DOF predicts Sacramento County's population alone will grow by nearly 18,000 people. However, only about 2,000 new units are expected to be completed by the end of the year. While this year is already forecasted to produce more than triple the number of rental units than the prior year and is also closer to the rate needed to keep up with demand, it won't make a major impact given the growth expected in the Sacramento region.

In addition, Sacramento's completion rate is expected to dip again in 2019 and is only estimated to bring 766 new units to the area.

The Sacramento metro area -- which includes cities in Placer, Yolo and El Dorado Counties -- has a market inventory of just over 127,000 apartment units. The count may sound like a substantial number but compared to a population of 2.3 million and counting, the inventory is past the breaking point.

There are other housing options available for residents, such as single-family homes, but the demand for apartments is at an all-time high across the country, according to We Are Apartments.

The apartment website explains, the demand for rentals is growing due to the rise of young adults as the largest demographic group in the U.S., the aging of baby boomers and because of immigration increases in the population.

Yardi Matrix Director of Business Intelligence, Doug Ressler explained there is a much higher need for affordable housing than market rate -- or upper income -- housing. However, less than 10 percent of housing currently under construction is fully affordable compared to the more than 60 percent of upper mid-range housing being built.

Another 20 percent of housing under construction falls under the discretionary -- or high income -- category. Altogether, more than 80 percent of rentals under construction would not meet the current demand for affordable housing.

"People are not looking for penthouses, and the demand for discretionary and upper income housing is much lower," Ressler said.

Only about 20 percent of existing rentals are considered to be fully affordable but unfortunately, even affordable housing is seeing exceedingly high rental rates. Low income and low mid-range income rentals have seen a 38 percent jump in price since 2014, according to Yardi Matrix.

Ressler further explained, Sacramento faces barriers such as strict zoning regulations and other land restrictions which have historically discouraged housing construction. Sacramento Mayor Darrell Steinberg has been working to satisfy both builders and the demand. He recently proposed building 1,000 tiny over two years to alleviate the demand for affordable housing.

The City of Sacramento is also working to make building easier. A slow permit process discourages builders from choosing Sacramento for construction over the risk losing money while waiting to be approved.

In 2017, the City issued 2,690 building permits for housing units -- including both single-family and multi-family housing, according to Kelli Trapani, Communications Coordinator for the City.

The number of building permits issued by the City has significantly spiked from 341 in 2014. Once a unit is issued a building permit, it takes about six months to a year for it to be constructed and ready for move-in.

While the City's efforts are moving towards improving the building rate by issuing permits at a faster pace, completion rates are no where near where they should be for the growth and demand in the Sacramento metro.

Sacramento has a long way to go until residents feel relief from the growing rent prices seen over the past few years.

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