California Rental Market Report

6 Minutes Read

California Rental Market Report

Although Florida and Texas may boast better weather and beaches than California, this state remains a magnet for newcomers of all kinds.

With a population of around 40 million, it’s a massive marketplace of homes, buildings, property, people and opportunities nestled in a diversified economy of farming, tourism, and technology.

And every year, hopeful property investors wonder if the California rental market is investible. Although a large number of single-family homes have been taken off the market in the last few years, it remains one of the top states for rental real estate investors.

But is it one for small business landlords and multifamily investors? Or is the encroachment of corporate multifamily investment firms going to bring a greater competitive challenge?

The overall California housing market presents complex challenges and opportunities for small landlords wishing to grow their portfolios.

No other state offers the mix of rental property assets to invest in as California does. As you’ll read, the market’s local flavor and makeup makes it less desirable to large international corporate landlords who might wish to push small landlords out of the picture. Small landlords armed with top management tools and advisors are well-positioned to continue succeeding in the Golden State.

A Place of Small Business Landlords

Stats show California is dominated by small landlords, single-family houses and low-rise properties.  California landlords have been here a long time and have developed sophisticated investing and management strategies. And that’s due to a more challenging environment where talent in property investing and management is needed. Many will use the latest SaaS property management software to protect their margins, earnings, tenants and asset values while others will depend on a competent California property management company.

For renters, California’s country-leading rent prices make living here a challenge. Although incomes are rising, rents continue their upward trend and the state’s faltering government is raising taxes to cover massive debt loads and tax shortfalls. It’s pressure-on for renters here and for landlords to beware if they’re not screening tenants well.

The business challenge for landlords and tenants is obvious, but investors in the state still prefer it to investing elsewhere. You’ll be looking for the best types of rentals in the best California cities for sure, but you’ll be digging in to find gems in smaller cities with upside potential.

Rent Prices Overall

According to Property Chomp, the median gross rents paid per month in California are:

  • Studio: $1,698 (+10% YoY)
  • 1-Bedroom: $2,395 (+7% YoY)
  • 2-Bedroom: $3,190 (+7% YoY)
  • 3-Bedroom: $4,378 (+4% YoY)
  • 4-Bedroom: $5,925 (no change)

California was once an owner-occupied state but has quickly become a renter state (49% renter-occupied). With home prices at US leading levels and mortgage rates remaining well above 6%, the outlook for lower rent prices seems dim. While there has been a large exodus of workers and homeowners to other states such as Arizona, Colorado, Florida, Texas and Tennessee, the state still attracts massive numbers of newcomers, many of them immigrants. That increases demand for homes and rentals making it seem like a no-brainer for landlords.

Zumper Price Report 1 Bedroom Rentals 2 Bedroom Rentals
Price Price Monthly Change Yearly Change Price Monthly Change
Yearly Change
Santa Ana, CA $2,180 -0.90% -0.90% $2,810 -5.70% 0.40%
San Jose, CA $2,450 0.80% -3.20% $3,090 -1.00% -2.20%
San Francisco, CA $2,950 1.00% 0.00% $3,920 0.00% -0.80%
San Diego, CA $2,330 -0.90% -0.90% $3,140 -0.60% 4.30%
Sacramento, CA $1,530 0.70% 0.70% $1,890 2.20% 2.70%
Oakland, CA $2,050 -1.40% -6.80% $2,700 0.70% -2.50%
Los Angeles, CA $2,390 1.70% 0.00% $3,330 -0.60% 4.40%
Long Beach, CA $1,800 0.00% 0.00% $2,400 0.00% 4.30%
Fresno, CA $1,360 4.60% 1.50% $1,600 0.60% 2.60%
Bakersfield, CA $1,050 -0.90% -5.40% $1,350 -3.60% -2.90%
Anaheim, CA $2,020 2.00% 1.00% $2,580 -0.40% 0.80%


The opportunity and variety of rental properties are endless, but the state is subject to rent controls, and tough landlord regulations, and the stressed cap rates and high financing costs require owners to be excellent money and property managers.

Anyone who invests in the California housing market must be a savvy real estate investor, and ready to discover and learn the truth about properties here. And being tech savvy is expected given this is the technology state.

There’s no doubt that for tech workers, California is the ideal place to be whether it’s Los Angeles, San Diego or the Silicon Valley regions. And high paid tech workers drive the rental market which is why cities like San Francisco, San Jose, Oakland, San Diego and Los Angeles have such high rent prices.

Questions for California Rental Investors

For California property investors, the question becomes about whether cap rates here are sufficient and whether occupancy rates and rent prices might rise in the next 5 years. California’s state government is in debt distress seeking Federal bailout money in the billions. But with tax hikes on the horizon, does buying rentals in California make any sense vs Florida rentals, Texas rentals or North Carolina Rentals?

It’s a fantastic market with continuous demand from endless tourists visiting and from never-say-residents who just love the Golden State. Despite high rent prices, California homeowners and business owners refuse to leave the home they love. That bodes well for you as a landlord, that demand is persistent and renters are loyal, if not stuck. You might say they may never solve the housing crisis in California. The more homes are built, the more newcomers are attracted.

It’s not just the allure of the Golden Gate Bridge, Silicon Valley tech, golden sand beaches, wineries, theme parks, vibrant cities, Yosemite Park, surfing big waves in So Cal, palm trees, unbeatable sunsets, and a perfect climate. It’s that all that and more which command a higher rent price.

Rent prices climbed in 2021/2022 but that pace is definitely over.

The key question perhaps for US and International investors is whether California will remain a good place to buy real estate over the next 5 years. Will taxes smother landlords and will rent price controls put them out of business? How severe is the single-family and housing shortage and when will the recent glut of multifamily construction releases be absorbed? Are the prices too high and what is the ROI like?

We’ll explore that here in the California Rental Market Report.

Brief Overview of the California Rental Market

A report just published in the San Diego Tribune by JONATHAN LANSNER shows only about a quarter of all California renters live in big apartment complexes. Those with 20 or more units comprised about 1.65 million households. He found via census data that 2.1 million households are in smaller buildings of 2 to 19 units. Single-family houses comprised 2 million households which is about 34% of renters in the state. And 128,000 households live in mobile homes, RVs and boats.

Large apartment buildings simply haven’t taken off in the Golden State, and houses and small buildings dominate the California rental market.

Rent Prices in California vs Florida or Texas

Rent prices in California like most states are high and forecasts are to the upside for 2024/2025. The USC Casden Forecast predicts rents will rise 2% to 3.5% annually in Southern California over the next two years.

Demand and Price Drivers

Key factors in the rental housing market in California are:

  • rising debt maturities for real estate investors and refinancing at higher rates in 2024/2025
  • exodus of young renters to Texas, Arizona, Washington, Nevada and Oregon
  • rising population with immigration at a high
  • new multifamily housing unit permits dropping
  • rents fell $200 on average over last 12 months (Zillow)
  • low supply should push grow rent prices again
  • several new taxes on property transactions over $5 million
  • residents leaving metro Los Angeles (net loss 146,000)
  • vacancy rate forecast to stay just about 4.8% until end of 2025
  • payroll growth slow markedly to 0.3% in 2024 from 2.1% in 2023 (Comerica report)
  • single family construction expected to lead the residential market
  • job growth slowed considerably in 2nd half 2023 (Calmatters.org)
  • budget deficit, flat tax revenue and massive unemployment insurance debt are financial headaches with no quick political cures (Calmatters.org)

Cap Rates in California Cities

Average Cap Rates by City (via CapRateindex.com)

Los Angeles – 4.8
San Diego — 4.44
San Francisco — 4.97
San Jose —  5.05
Sacramento — 6.19
Oakland —  6.04
San Bernardino — 5.92
Oceanside — 4.81
Napa —  5.66
Fresno — 6.44
Monterey — 5.56
San Mateo — 4.55
Miami, FL — 6.84
Nashville — 6.24
Dallas TX — 6.55
Las Vegas — 6.22

Inflation is Easing in California

If inflation was driving the misery index, reducing supply, and flattening the housing market, 2024 could be a turnaround year. Stats show that more owners are beginning to list their properties.  With FED easing rates later in the year, summer could see many more homes and rental properties being listed.

Investors should be preparing in-depth studies of the rental market forecast while working with a California REALTOR who knows the market.

Investing in 2024

2024 may be the pivot year of change, as mortgage rates begin to recede and the new US economy begins to thrive.

Given the financial pressures of investing in California properties is intense, you’ll want to leverage property management technology to streamline, automate and optimize operations. The best of the available, professional-level property management software products allow you to improve workflows, optimize cash flows, and keep your tenants leased.

Good luck with your California rental income property quest.

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