2024 in Berkeley - A Year in Review & Looking Ahead
As we wrap up another year in the Berkeley rental property scene, it’s time for a little reflection on events that have occurred in 2024 and a start on planning for 2025 and what it might bring. As usual, this past year has been one of highs, lows, and a few surprises.
But, all in all, we’ve weathered the storm (and, here in Berkeley, when it comes to housing, there’s always a bit of a storm). Prop 33 was soundly defeated, giving relief to all of us with legacy tenants who worried about the possibility of vacancy control coming back. But Measure BB did pass, and with it a whole host of potential negative consequences. So, let’s dive into what’s been happening in Berkeley rental housing this year and what we can expect in the months ahead.
Rent and Sales Trends
Let’s start with the good news. Berkeley rental housing continues to be in high demand, and even though many owners are currently suffering with (relatively) high vacancy rates, we are likely near the ‘peak of pain’, as less new supply comes on the market and the existing housing stock continues to get leased up.
According to CoStar, rents will likely continue to decrease through the first quarter of 2025, but then they expect stability and rent growth above 2%. Also, renters are becoming more price-conscious, and the high-end appears to be suffering the most.
Due to Berkeley’s desirability and stable demand (thanks to the university, local food scene, and general quality of life), investors in rental housing have also begun stepping back into the market. We are doing much better than neighboring markets, such as Oakland. The key disconnect is still seller price expectations, as the market has reset significantly from the boom years of 2021-2022.
Looking ahead, I don’t expect any drastic changes. Buyers are looking for properties that make sense. And, with interest rates in the 5-6% range, that means higher cap rates.
Operations (and Legislative) Trends
The noose of rent control continues to tighten. Evicting tenants continues to get harder and to take longer. The state has added additional time for tenants to respond when an eviction is filed and tenants are now even more strongly encouraged to get legal counsel (which you are paying for). This has caused the price of getting a tenant out (in both dollars and time) to skyrocket, even when the owner is totally in the right.
Tenant attorneys have been negotiating waivers of back rent, payments to tenants to move, and requiring neutral references (so the problem can be passed on to the next
owner — and the attorney can be hired once again).
Owner requirements for documentation have now increased when it comes to security deposits. In general, you must carefully document the damage, both with photos, and with other documentation. Although these practices are not too different from what you should have been doing, the burden of proof for deducting funds from a security deposit has now squarely fallen onto the property owner.
Insurance continues to be a major issue and cost for owners. Hopefully, the legislature has gotten the message and insurance will once again become more competitive. However, I would not expect rates to fall substantially from where they are now. Construction costs have skyrocketed and litigation costs continue to increase. But at least coverage will be available and that should help mitigate costs.
Looking forward to 2025
I’m cautiously optimistic about the year ahead. Based on the recent elections, including recalls, it is my hope that we’ve hit peak ‘progressive’ politics and that might allow us to negotiate saner housing policies going forward. The sound defeat of Prop 33, and the probable passage of Prop 34 should hopefully send a message to legislators that the people do not want these extreme policies (one can hope, anyway).
Although the rent board continues to be an extreme tenant protection organization, rather than what it was originally intended to be (an enforcement mechanism for rent control laws), I do hope the city council will start to see them for what they are (a very biased organization) and not continue to accept their recommendations as necessarily good for Berkeley housing policy. It is our job to help on this front.
My recommendations going into next year:
- Try to stay out of the legal system. Work things out with your tenants if you can. The legal system, as currently structured, is strongly against you. So, best to let common sense prevail, even if it costs you a little.
- Document everything. Keep detailed records of all tenant communications to ensure you can defend against any challenges.
- Keep your property maintained. Habitability is a very common defense, both in eviction claims and rent increase disputes. Make sure your properties meet standards for safety, cleanliness, and overall livability. Berkeley has an increased scrutiny of landlord responsibilities, so it is incumbent upon you to meet their standards.
In the end, despite the challenges we’ve faced and the unpredictable nature of the market, there’s a lot to look forward to in 2025. Make sure you become familiar with
the new laws and requirements that are going into effect in 2025 and utilize the resources of BPOA. Berkeley’s multifamily housing market is evolving, and with it, opportunities will continue to emerge.
Here’s to a prosperous year ahead!