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Sonoma County rental market tightens

Mike Ferreira, owner of Santa Rosa Landscape, mows the lawns at Coddingtown Mall Apartments.

CRISTA JEREMIASON/Press Democrat
Published: Monday, July 29, 2013 at 6:19 a.m.
Last Modified: Monday, July 29, 2013 at 6:19 a.m.

Construction workers have yet to cover the particle-board exterior of a 52-unit apartment project in downtown Santa Rosa, but already the waiting list for the rental units has grown large enough to fill a building three times the size.

“The demand is intense,” developer Hugh Futrell said of the 150-plus households that are seeking a home this fall in his five-story, affordable housing project at Humboldt and Seventh streets.

And it's going to get much worse for renters, Futrell said, if Sonoma County meets near-term projections for job growth.

The days of slow-rising rents are over, pushed up by low vacancy rates and a dearth of new construction in the county. Property managers said prospective renters are frustrated by the same challenges that first-time homebuyers encounter in today's tight housing market.

“It's brutal,” said Keith Becker, owner of DeDe's Rentals in Santa Rosa, a company that oversees rental houses. “We are leaving many qualified applicants unsatisfied simply because there is such high demand.”

The county's average apartment rent rose 6.9 percent in the last 12 months to $1,335, according to RealFacts, a Novato-based apartment market research firm. That was the third-biggest jump for the state's largest metro areas, behind only red-hot San Francisco, San Jose and Santa Barbara.

Nearly 98 percent of the county's rental units were occupied at the end of June, the second-highest occupancy rate among 24 metro areas. A year ago, the rate stood at 96.2 percent.

The rising rents and tight occupancy appear tied to a lack of new housing.

“There just hasn't been any development in Sonoma County,” said RealFacts spokesman Nick Grotjahn.

The county hasn't added any market-rate rental units in three years, according to RealFacts. Only 71 such units have been built since the end of 2007.

During and after the recession that began in December 2007, rents stayed essentially flat here for three years. Property managers said utility and other costs were still rising, but landlords felt the economy was too shaky then to seek more from tenants.

But since 2010, the county's average apartment rent has risen nearly 13 percent, while the occupancy rate has outpaced the average growth for Northern California communities.

Now the outlook is for more rent increases because landlords are encountering such great demand, Grotjahn said.

“They aren't fearful that if they raise rents, they're gong to lose someone,” he said.

The rental market comprises a sizable portion of the county's 180,000 houses, apartments and condominiums. Four in 10 housing units here are occupied by renters, according to the U.S. Census Bureau.

In Santa Rosa, Pine Creek Properties and Goodwin Property Management together own or manage about 1,000 rental units in the county. Last week the managers had just 10 units that soon will become vacant, and all of them already are on track to be filled, said Pine Creek controller Patty Goodwin.

Pine Creek Properties, which are owned by longtime county developer Ken Martin, include the Coddingtown Mall Apartments on Range Avenue. The 230-unit complex, built three decades ago, doesn't have a single vacancy, said Goodwin, who runs the property management company with her husband Larry.

“We've really cut down on our advertising because we don't have anything to rent,” she said.

At Alliance Property Management in Santa Rosa, President Jock McNeill manages about 675 rentals, both houses and small multi-unit properties. At the end of June, the company had just three vacancies, though the number since has risen slightly.

“If you're in need right away, you're in trouble,” McNeill said. “I would not want to be looking for a home right now to rent or to buy, just because there isn't the inventory.”

What lies ahead depends upon supply and demand.

In Santa Rosa, the county's first market-rate apartment project since 2009 is expected soon to break ground. The Wolff Company of Scottsdale, Ariz., proposes to begin construction this summer on the 270-unit Range Ranch apartments south of Coddingtown at Jennings and Range avenues.

Santa Rosa has “one of the strongest rental markets in the West,” said spokesman Rob O'Dea.

The company hopes to begin signing the first leases here as early as next spring, but expects to take about 20 months to complete all aspects of the $34 million project that the company characterizes as an “upscale” development.

While every new unit will help, one single apartment complex won't solve the county's lack of rental housing, said Futrell, a Santa Rosa native, former city school board member and a developer for three decades.

Sonoma County is expected to add 15,000 jobs in the next three years, according to a 2012 report released by the county's Economic Development Board. Futrell estimated that such a level of job growth normally would prompt the construction of 6,000 new rental units, not including new, for-sale houses and condos.

“I think it's clear our shortfall is several thousand rental units,” Futrell said, in part due to limited building sites and the relatively high costs of construction. He said he's never been as concerned about the difficulties that renters here will face, adding that the pain will “fall on those with marginal incomes the most.”

The demand for affordable housing like Futrell's downtown project remains extremely strong.

For example, Burbank Housing is planning this fall to complete its 66-unit Logan Place apartments in Petaluma.

The nonprofit Santa Rosa home builder recently received nearly 1,000 applications for the apartment lottery, said Pascal Sisich, Burbank's director of housing development and deputy executive director.

The reward is great for those who actually gain one of the Logan Place units. A family of four making less than $39,250 a year would pay just $973 a month for a three-bedroom apartment. If the annual income was under $23,550, the family would pay $543 a month.

Burbank has built nearly 450 affordable rent units since 2008, bringing its total to about 2,700. But its vacancy rate is still about 2 percent, Sisich said, which is effectively as close to zero as the nonprofit ever gets due to normal turnover.

Low-income renters also can receive help through federally-funded Section 8 vouchers that subsidize rents in market-rate apartments. But those who recently obtained such vouchers from the county typically had to wait five years to enter the program, said James Hackett, manager of the county's Housing Authority.

About 3,000 households receive the rent vouchers from the county, and Santa Rosa's housing authority has a similar program.

Public funds remain key for affordable housing to grow, officials said.

Burbank has had plans ready for three years to build about 235 new rental units in the county, but it doesn't have enough money to complete them, Sisich said.

The nonprofit is backing a proposed state law, SB 391, that would provide affordable housing funds through a new tax on certain real estate documents filed at county recorders' offices. The funds would partially replace those that previously came from redevelopment agencies before they ceased to exist.

Meanwhile, the Section 8 vouchers program was cut 6 percent nationwide for the current year due to the sequestration reductions approved by Congress, Hackett said. The sequestration process and the potential for further cuts are planned to continue for the next nine years, he said.

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