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Rent in California Is Even Higher Than You Thought

Rent in California Is Even Higher Than You Thought

(Bloomberg View) -- Which U.S. city has the highest rents? San Francisco, right? Maybe New York? Ummm, no.

Rent in California Is Even Higher Than You Thought

San Ramon is an affluent (median household income: $151,327) San Francisco suburb of 75,639 that's probably best known outside the Bay Area as the headquarters of oil and gas giant Chevron Corp. I grew up a few miles away, in Lafayette, which is too small for the Census Bureau to provide single-year estimates but had a median gross rent of $1,816 from 2012 through 2016.

I dug up this data, which is derived from the Census Bureau's annual American Community Survey and is available on the American FactFinder website, while working on my column last Thursday about housing in New York City. I was curious how rents in New York City compared with those nationwide. New York City's median gross rent of $1,351 in 2016 was indeed well higher than the national median of $981, but that ranked the city only 145th among the 599 cities, towns and census-designated places of around 65,000 people or more for which the Census Bureau released rent data for 2016. San Francisco -- median gross rent: $1,784 -- was much higher, but still only 37th nationwide.

When I posted a version of the above list on Twitter last week, it kind of blew up. Most of the responses came from young Californians LOLing and LMAOing about how expensive their state is. And yeah, it really is expensive: 27 of the nation's 28 top cities for median rent, 35 of the top 50, and 68 of the top 100 are in the Golden State.

Some tweeted that the rents in the list seemed lower than those in the real world. This can be explained mainly by the fact that these are the median rents for dwellings that people are living in, not those currently on the market. (More on that in a moment.)

Yet others expressed disbelief that San Francisco or New York -- or some other city with a higher profile than San Ramon -- didn't rank in the top 20. They have something of a point: As indicated in the above table, only 28.5 percent of San Ramon residents live in rental housing, and a lot of those rentals are in large single-family homes. Its median rent isn't perfectly comparable to that of bigger, more tightly packed cities such as San Francisco or even Sunnyvale.

Happily, the Census Bureau also provides estimates (with bigger margins of error, to be sure) of median rents by number of bedrooms. Here's where one-bedrooms are the most expensive:

Rent in California Is Even Higher Than You Thought

There are still a lot of California suburbs on the list, among them San Ramon and nearby Pleasanton. But now at least San Francisco makes the cut, as do a couple more non-California cities.  New York City moves up to 73rd place, with a median one-bedroom rent of $1,235.

Again, that may sound awfully low if you've looked for a one-bedroom apartment in New York City recently. This is because, as already noted, these numbers represent the median of existing rentals, not of those currently on the market. In New York City, 57 percent of rental apartments are either subject to rent regulation or enjoy some kind of public subsidy or other intervention to keep rents down. Those below-market-rent apartments are really hard to find: The vacancy rate for rent-stabilized apartments in New York City was just 2.1 percent in 2017, and for other subsidized/regulated apartments it was 0.9 percent -- compared with 6.1 percent for unregulated apartments. But these regulated apartments remain where the majority of New York City renters live.

Some California cities have rent regulation, too, and their median rents are similarly lower than those in unregulated nearby communities. San Francisco, which I've already discussed, has rent regulation. Same with Berkeley, which ranks 55th nationwide, with a median rent of $1,657 (from here on I'm referring again to the overall median, not just the median for one-bedrooms); Santa Monica, 72nd, at $1,572; Los Angeles, 162nd, at $1,315; and Oakland, 164th, at $1,310. Rent regulation may cause all sorts of problems, but it does seem to keep median rents down.

Another factor is that, as Issi Romem, chief economist at contractor site BuildZoom Inc., has documented in map-rich detail, more new housing is being built these days in the central cities of expensive coastal metropolitan areas than in the suburbs. So that puts a little downward pressure on big-city rents, too. Finally, in the case of New York City, it's important to remember that there's a lot more to it than Manhattan and the expensive parts of Brooklyn.  

In my continuing quest to create a top 20 list that did include the Big Apple, I ranked median rents for the country's 100 most populous cities and census-designated places. In case you were wondering, Richmond, Virginia, is the 100th biggest, with an estimated 223,170 residents in 2016.

Rent in California Is Even Higher Than You Thought

New York's finally in the top 20! It's also behind Gilbert, Arizona, and not all that far ahead of Plano, Texas. Yes, those are both suburbanish places where about 70 percent of the population lives in owner-occupied housing and a lot of the rentals are stand-alone houses. It's not a perfect comparison. But it is interesting.

Another way the Census Bureau measures rents is as a percentage of household income. The error margins on the 2016 estimates are so huge that a top-20 ranking would be meaningless, so I used the five-year estimates based on data from 2012 through 2016. Those cover a lot more cities, towns and places than the one-year estimates, so to make the charts roughly comparable, I used a population cutoff of 60,000. Here, by that reckoning, are the places where rent eats up the highest share of income:

Rent in California Is Even Higher Than You Thought

There are a lot of college towns on this list, I guess because students drive down median incomes while driving up demand for rentals. Other than that, it's mostly less-affluent parts of expensive metropolitan areas, plus a couple of places that are downright poor. Flint, Michigan, has one of the lowest median rents in the country, but people there still struggle to pay. There are worse things in this world, it turns out, than high rents.

This is also apparent when one ranks the cities and places where median rent eats up the smallest share of household income. It's mostly affluent suburbs in metropolitan areas with relatively low real estate prices, plus a couple of oil boomtowns far from big cities (Bismarck and Odessa). But the list also includes the pretty expensive suburbs of Sammamish and Bellevue (Seattle), Flower Mound (Dallas-Fort Worth), and Sugar Land (Houston), plus two super-high-rent cities in the heart of Silicon Valley:

Rent in California Is Even Higher Than You Thought

A note on the data: Cupertino's population was 60,643 as of July 2016, so it's short of the cutoff for the Census Bureau to release single-year data. If it ever makes the cut (it's growing very slowly, so it might not), it will clearly wrest first place in the annual median rent rankings from San Ramon. And the Sunnyvale median rent here is lower than the Sunnyvale rent in the first chart because this one is the average from 2012 through 2016.

In any case, those seemingly exorbitant rents in Cupertino -- home of the world's most valuable corporation, Apple Inc. -- and Sunnyvale are actually pretty affordable for the median Cupertinan or Sunnyvalean. It's a useful reminder that while California's sky-high real estate prices are in part the unhappy result of restrictive geography and an even more restrictive regulatory environment, in Silicon Valley at least they are also the not-so-unhappy product of sky-high incomes. Again, there are worse things in this world than high rents.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

  1. Give or take $13,171-(the margin of error).

  2. According to the Census Bureau CDPs "are delineated to provide data for settled concentrations of population that are identifiable by name but are not legally incorporated under the laws of the state in which they are located."

  3. That's what the Census Bureau says the cutoff is . Eight of the cities, towns and places on the list had populations of less than in though, according to the American Community Survey. So go figure.

  4. Arlington, Virginia, is technically not a city but a county. But that's just because Virginia is weird about cities and counties

  5. I count College Station (Texas A&M University), Auburn (Auburn University), Iowa City (University of Iowa), Bloomington (Indiana University), Davis (University of California at Davis), Ames (Iowa State University) and Boulder (University of Colorado). A couple of the other cities have universities, but I don't think they're really college towns.

  6. Rogers, Arkansas, is part of the sprawling, fast-growing Fayetteville-Springdale-Rogers metropolitan area -- estimated population: which also happens to include the city of Bentonville, home of Walmart Inc.

To contact the author of this story: Justin Fox at justinfox@bloomberg.net.

To contact the editor responsible for this story: Brooke Sample at bsample1@bloomberg.net.

For more columns from Bloomberg View, visit http://www.bloomberg.com/view.

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