market overview continued looking ahead

this at least reflects an improved situation for landlords that were not earning income on many of these units but whose hands were tied in respect to finding new tenants.

Even while vacancy numbers climbed in 2022, the reality is that Sacramento’s population growth has increased since the arrival of the pandemic. The Sacramento region has acted as a housing pressure valve for its pricier neighbors by the Bay for the better part of the last 40 years. This in-migration has come in multiple significant waves; in the early 1990s as the initial tech boom ramped up, in the early 2000s as the second tech boom arrived and, most recently, with the arrival of the pandemic. For example, it is estimated by the Census Bureau that in the year 2020 the City of San Francisco lost approximately 140,000 residents, or nearly 19% of its population. Only a small percentage of these movers actually left the state. Most of the movement was temporary—it is estimated that roughly half of these residents had returned by mid-2022. Many were first-time homebuyers (primarily Millennials) that drove a suburban housing boom and national spike in singlefamily residential (SFR) pricing. Others were renters that took advantage of remote work capabilities to leave town. Many landed in Sacramento where average asking rent per unit typically are near 50% below those of San Francisco, the Peninsula and San Jose.

The in-migration trend is demonstrated clearly by occupancy trends in 2020 (the Sacramento apartment market absorbed over 2,500 units) and 2021 (positive net absorption of just under 1,800 units). New deliveries in both of those years were also below 2022 levels. Developers added just over 1,300 new units in 2020 and another 1,800 the following year. Incidentally, that construction pipeline remains strong going forward. As of the end of 2022, there were over 4,400 units in development throughout the region with delivery timetables slated through early 2024. This is the highest number of units under development that we have tracked in 20 years. But it is important to remember that in the wake of the housing collapse and the Great Financial Crisis, very little new product came to market. Less than 1,600 new apartment units were delivered in the region between 2008 and 2014. This shortage of product resulted in Sacramento taking its place as one of the top US markets for multifamily rent growth multiple times over the last decade. That rent growth, obviously, has also fueled the aggressive return of new development. That being said, the current rate of new development accounts for less than 3% of the existing inventory. Years of underbuilding and the recent surge in in-migration since the pandemic mean this level of development isn’t just sustainable but it is simply not enough to return the marketplace to equilibrium.

The current average asking rent per unit throughout the region is $1,832 per month. This reflects an increase of just 1.1% from the $1,813 per unit reading of one year ago. But it is still up 18.7% from where it stood prior to the pandemic. Over the past decade, this metric has climbed a whopping 70.9%.

So with supply (new deliveries) outpacing demand (net absorption) in 2022 and multifamily rent growth slowing after years of recordsetting trending, where does this leave us for 2023? Development levels are going to remain elevated at least through the remainder of this year. However, due to the lifting of eviction moratoriums, we don’t think 2022’s net absorption tallies are a good indicator of what will happen in the coming year. If anything, this was the market finally clearing its books of a challenging issue—especially for mom-andpop landlords or smaller property investors.