The Sacramento region’s rental housing market is witnessing a significant shift in renter preferences, with construction slowing and vacancy rates on the rise, according to Will Austin, director of analytics at CoStar.

Will Austin

“For the first time over the last few years, we’ve seen [renters] focus on smaller units,” Austin said Wednesday during the California Apartment Association’s Sacramento Rental Housing Round-Up webinar. This change represents a departure from renters’ traditional demand for suburban-style living.

Renters, especially those moving from the Bay Area and other densely populated areas, have been historically drawn to Sacramento for its affordability and access to attractions such as Lake Tahoe.
However, the rise in interest in smaller units is juxtaposed with challenges facing the housing market

Market challenges and rising vacancy rates

“Over the last few years, there’s been an influx of deliveries with not as much demand. That’s led to significant increases in the vacancy rate,” Austin noted.

He attributed this to a decrease in new household formations and changes in rental behaviors. “New household formation is down. People are less willing to go out and rent an apartment on their own. Or alternatively, if they are on their own, maybe they’ll double up with a roommate,” he said. Such factors exert upward pressure on vacancy rates and downward pressure on demand.

Austin was among several speakers at the CAA’s Round-Up event. Other participants included Lisa Kaplan, Sacramento District 1 City Councilwoman, and a panel of CAA industry experts who provided updates on local and state legislation and court cases impacting the industry. The webinar is now availalbe on demand.

Factors behind slowing construction pace

Sacramento is near the 10-year peak in active construction, Austin noted. However, a decline in the pace of groundbreaking is evident. High construction costs, rising interest rates, a slowing economy, and people’s hesitation to branch out on their own are contributing to this slowdown.

Despite these challenges, the slowed pace of construction and increasing market competition are compelling landlords to enhance their amenities. Austin said, “New projects come with a ton of amenities, and existing properties are often forced to improve their amenities to attract more residents. Landlords are introducing offerings ranging from free kombucha bars to bike parking and pet washing stations.”

Regarding the market’s resilience, Austin underscored the sustained draw of Sacramento’s rental market from outside the region. He pointed to job growth in areas such as Highway 50 and Roseville, marked by Bosch’s acquisition and Solidigm’s market relocation. Austin emphasized the lower cost of living and rising job opportunities as crucial factors attracting people to the region, thus bolstering the multifamily sector’s demand.