Why Is Rent So High In California? (12 Reasons Why)

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Morgan Stephens

Morgan Stephens has been to 43 countries and counting, and he's never content to stay in one place for too long. Right now, he's living in South Korea, but he's always on the lookout for his next adventure.

Rent has been rising across the nation, but it can be seen the most in southern California, where rent prices are at an all-time high.

Why is rent so high in California, though? There are many reasons for it, many of which pertain to all the states across America. Let’s take a look at why that is the case.

Why Is Rent So High In California?


1. Flood Of Housing Rentals Needed

Covid-19 is the biggest reason rent has gone through the roof over the last couple of years. Before the pandemic, people lived on their own, one family per home or apartment.

After the pandemic crashed into the nation, people lost the ability to work full-time hours, meaning they did not have the money to rent places on their own.

Families and close friends pooled their money together to help themselves survive. Rentals originally designed for one-family homes turned into a rental with numerous families under one roof.

Those families that had put their money together for homes are now flooding the rental scene. Creating a shortage of rentals for everyone else.

2. Housing Shortages For Buyers

When there are no houses for people to buy, they lean towards renting until they can get their finances squared away.

People who would generally be buying a home find that the market is so scarce that renting is their only option, increasing the housing shortage for all.

These people usually have more money to spend than the average renter. Property owners that do have rentals available have taken the opportunity to increase their prices.

This makes homes easy for mid-level and high-level earners easier access to homes that are sought after by families across the state. Causing the families to live in campers or on the streets for now.

Homeless and displaced people are waiting for a rental to come up for them to move into. That is if they can afford the inflated rent prices being attached to them.

3. Housing Construction Not Enough

Since the middle of the 2000s, the amount of housing built is not even close to the need. Current estimations are that California areas need 180,000 units annually to sustain enough rentals.

Over the last ten years, an average of 80,000 were built annually. You can see that this is less than 50% of the homes needed just to keep local families off the streets.

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That does not even consider the multitudes of people moving into the state in search of employment. Looking for jobs that pay more than the cost of living.

Plus, you need to remember the younger generation coming into the market, with buying for most being out of reach for them at the moment.

If the amount of construction does not exceed more than double what it is currently, people will continue to fight for rentals. This will push rental costs to even more heights.

4. Rent Takes Majority Of Income

Rules that personal budgets across the United States have followed for years is 30%. Your rent should take no more than 30% of your income.

Housing rental rates have increased this percentage by a substantial amount. Recent numbers show that the average person is now paying 50% of their income, or more, on just rent.

When you factor in the other necessary items included in your cost of living, you will find that you do not make enough money.

You must have a place to live, so your rent comes first. Food and clothes must wait until the rental market levels off at more realistic amounts.

5. Decrease In Homeowners

This was touched on before but boils down to supply and demand. Demand for houses to buy has gone down dramatically.

Not because people do not want to buy their own homes. Problems come with the supply, and the supply simply cannot keep up with the demand.

When homes do come up for sale on the market, property investors scoop them up. Not just taking them away from home buyers but increasing the prices that the homes sell for.

Investors know that if they buy the property, they can put it up for rent on the market. A market that will net them enough money to pay the mortgage and then some.

6. Homelessness On The Rise

Homelessness On The Rise

1/5 of the homeless population in the US can be found in California. It is estimated that over 151,278 people are homeless in the state.

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Some of those homeless are the average ones you would expect living on the streets. But many of the others are not in that group.

Families, young adults just striking out, veterans, and the elderly are now homeless because of the rental costs. If you are retired or work for minimum wage, you cannot make your bills, let alone the rent.

They wait for rentals to open that they can afford. They must apply and wait for the property owner to review the application. An application that lists their address as living on the street.

Property owners will pass by your application. You do not have a place to live at the moment, making you a higher risk for them because you cannot show them good rental history.

7. Increased Inequality

Equality has never been a subject that people want to discuss. Still, it is a problem throughout the nation, California included.

This is not just a problem spread out through employers and lenders, but it is a problem regarding housing. Property owners judge potential tenants by who they are, not because of what they are and how much they have accomplished.

It is not fair, and it is not legal, but it happens. Need and the ability to pay is not always a guarantee that you will get the house or apartment you are trying to rent.

8. Lack Of Opportunity

People that invest in housing continue to invest. They have plenty of open opportunities, while you may not even get your foot in the door with the same lender.

Property owners continue to increase prices. Owners know that if you are unwilling to pay the cost they want, someone else will.

Opportunities for people wanting to buy a home are dwindling down to no chance. There is no chance unless they are on top of the listings and willing to pay exceptionally high prices.

9. Property Prices Increase Rent Costs

Housing along the coastal areas of California is sought after by many but is only affordable for a few. People that are at the higher end of the social spectrum.

Developers find that the cost of buying property and building homes are less profitable. Unless they increase their costs.

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Contractors and developers that increase their prices cause the housing unit to cost them more. That increase in cost will be passed on to you, the one trying to find a place to rent that you can afford.

10. Community Resistance

You would not think that one of the driving factors for increased rent would be the people living in the community, but it is a huge problem.

People who own their homes in the neighborhood do not want renters in the area. They defiantly do not want apartments built across the street.

Suppose they continue to petition against housing projects in the works. In that case, affordable housing will be hard to find for families already struggling.

11. CEQA Affects Housing Production

Building enough affordable housing units in California is already a complicated undertaking. Still, when you add in CEQA, which requires an environmental impact inspection, you make construction grind to a halt.

When the housing market is slow to build a home, it will be long before people can move in from the streets or out of their parent’s basement.

12. Limited Funds From Local Governments

Generally, government funding is available for many aspects of housing.

They would incentivize builders to create housing solutions, people needing help getting into housing, and low-income housing assistance. However, in the 2020s, much of these funds have been diverted.

To learn more, you can also read our posts on why Seattle is so expensive, why NYC is so expensive, and why Palo Alto is so expensive.

Final Thoughts

Housing costs have risen to astronomical heights over the last few years, but experts hope their prices will begin to level off. The more housing options that California has, the better off the people will be.

Experts claim that housing costs will continue to increase through the next couple of years, but not as much as they have been. They are looking for it to level off, making it within reach once again.

Author

  • Morgan Stephens has been to 43 countries and counting, and he's never content to stay in one place for too long. Right now, he's living in South Korea, but he's always on the lookout for his next adventure.

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