Southern California’s Residential Rental Rates and the Pandemic

Article by Nate Coffin.


The COVID-19 pandemic presents many challenges for the residential rental market. Some renters are choosing to leave city-life under the new work-from-home culture and seeking living arrangements in cheaper or lower infection areas. Other renters, both inside and outside of the city, are facing unemployment and struggling with payments. These diverse scenarios present a compelling topic of inquiry: what is the relationship between Covid-19 infection rates and residential rental rates? Are there differences between cities that are notably expensive or inexpensive? 

In July of 2020, it was estimated that 30-40 million renters nationwide could face eviction by the end of the year, with one-third of renters having little to no confidence in being able to afford their upcoming monthly payment. The winter months brought an unprecedented rise in Covid cases across Southern California, with 1 in 5 daily Los Angeles County tests coming back positive in January. Meanwhile, a January study showed that 20% of California’s renter households were behind on payments.

This reality has led to policy actions. In September of 2020, California Governor Gavin Newsom issued a moratorium that prevents evictions for tenants who meet 25% of their rent. In January of 2021, Newsom extended this moratorium through June. President Biden moved to extend a federal eviction moratorium via executive order on his first day in office.  While there have been numerous legislative efforts from federal, state, and local governments to offset these economic hardships, people continue to struggle with housing-related costs. These struggles, however, may not be uniform. Renters in some areas may have found solace in the form of reduced rental rates. As of December, the average rent of Los Angeles apartments had fallen nearly 8% since the start of the pandemic — the first yearly decline in about a decade. A simple economic explanation for this phenomena suggests that it is driven by demand-side factors, e.g., students didn’t move to the city for new jobs, existing workers may have left to work-from-home elsewhere, and others may fear the concentration of individuals in the city center is ripe for contagious spread. In this article, we take a closer look at cities within the Los Angeles metropolitan statistical area and nearby counties to explore diverse differences in rental rates, controlling for pre-Covid trends in rental rates and population density. 

Using data from the rental website Zumper, we examine the percent change in rental rates from January 2020 to January 2021 in 28 cities across 4 counties in Southern California. The figure below identifies the cities in this study and their associated annual change in rental rates and Covid-19 infection rates. We notice larges differences; some cities have experienced decreases in rental rates, whereas others have experienced increases. To understand what may be driving these city-level differences, we construct a regression model, where the outcome variable is the percent change in rental rates from January 2020 to January 2021. The model includes city-level controls for Covid-19 infection rates per capita, the total population in 2020, pre-Covid-19 rental rates, and the trend in rental rates between September 2019 and January 2020.

Figure: The location of the cities in our sample. The dot size is proportional to the city’s January 2020 rental rates and the color represents the change in rental rates from January 2020 to January 2021. Scrolling over cities gives adjusted Covid-19 case rates.



From the regression, we find that Covid-19 infection rates and total population are statistically insignificant, which aligns with intuition when considering that Covid-19 infection rates are quite high across the cities in our sample (and Southern California, in general) and all of the cities are densely populated. What is interesting is that we find that pre-Covid-19 rental rates and trends are negatively associated with the changes in rental rates. This means that areas that were more expensive and those experiencing an increase in rental prices before the pandemic are the areas that are experiencing a decrease in rates. On the other hand, less expensive areas are still seeing increases in rent. This disparity is unfortunate because individuals of lower socioeconomic status were already disproportionately affected by the pandemic due to higher rates of unemployment. And this study shows additional adverse effects for this population – increased rental rates – whereas rental rates in areas of higher socioeconomic status decreased. 

In Santa Monica, for example, there has been a substantial decrease in rent of 14.9%. It is one of the most expensive cities on the map. Riverside, in contrast, the least expensive city on the map, had increased rents by 3.6%. While we cannot say for certain the mechanism behind these results, a potential demand-driven explanation could be that people are relocating from expensive areas to more affordable areas, putting upward pressure on those prices. However, a holistic view of rental rate changes would also need to consider what is happening with new home construction, housing inventory, and real estate purchases.  

While the rental protection bill recently signed by Newsom aims to deal with this issue, critics say the bill gives too much discretion to landlords. The deal entails the state paying off 80% of unpaid rent if landlords agree to cover 20%, but there is no recourse for tenants whose landlords don’t take the deal, likely exposing many low-income renters. The reality is that the cities whose residents are least equipped to endure the pandemic are generally the same ones that are suffering from rising rent payments. As a result, state and local lawmakers must move to further protect California’s renters, especially those located in areas that were less expensive before the pandemic.