Merced rental costs continue to rise consistently. What’s behind the increase?

By JOVI DAI l June 6, 2024

Jovi Dai is a data journalist at the Center for Public Integrity based at the Central Valley Journalism Collaborative.

In the 20 years Lisa Hicks has lived in the Central Valley, she’s watched as local rents increased year after year.

That trend, while briefly disrupted by the pandemic, has intensified. For example, from January 2015 to January 2024, the average monthly rent in Merced County steadily ticked upward: from $974 in 2015 to $1,932 in January 2024.

“It doesn’t seem like there’s an end in sight,” said Hicks, 44, a real estate transaction coordinator at Keller Williams Property Team in Merced. 

She said in recent years fewer people have been putting homes on the market. That, combined with a lack of construction has forced many residents into the rental market. “Homeownership has gone down a lot.” 

Merced County and the rest of the Valley has seen apartment rents rise in the years since the pandemic. But even with rent prices rising in Merced – where the median household income is $64,772, compared to $91,905 for the state, according to 2022 U.S. Census numbers – it remains significantly more affordable than other places across California.

Merced rents are 26 percent lower than the national average and 31 percent lower than the average rent across California.

Alex Lacter, a Zillow spokesman, noted Merced County’s rental market has shown resilience in navigating the economic ebbs and flows seen across the Central Valley, according to the Zillow Observed Rent Index.

The index calculates the average of all rent prices between the 35th to 65th percentile, aiming to identify a municipality’s “typical” rent.

Even so, according to the web-based interactive tool “Affordability for Whom?” – which is managed by the Terner Center and UC Berkeley and calculates housing affordability – about 66% of renters in Merced can afford to live comfortably or manageably, compared to 61%  of renters in Fresno and 63 percent of renters in Stanislaus County.

The tool also unveils significant disparities across various demographic and socio-economic groups, underscoring the importance of considering such factors in housing affordability assessments. 

For example, households headed by people with a college degree are significantly more likely to be able to afford to reside in Merced County at the level of living comfortably or manageably (89%) than non-college graduates (66%). Among Merced households with children, only 49% can afford to live comfortably or manageably, compared to 67% for households without children.

“It’s true that jobs pay less in Merced but also that housing rents are cheaper there,” said Rowena Gray, UC Merced associate professor of economics.

Limited amount of local housing plays a role

Gray pointed out that the impact of the minimum wage in Merced is more significant than in many other California communities. Despite the fact that rents have increased in line with Bay Area communities, the overall affordability in Merced remains relatively stable.

She mentioned the limited expansion of available housing and high land prices as the primary factors driving the increase in rents in Merced.

“These factors, which make it less likely for cheaper apartments to be built, are also prevalent in other locations,” she said. “The unique aspect for Merced-type areas might be the higher number of migrants and non-English speakers, who might face challenges in accessing affordability programs.”

These issues are not unique to Merced. Gray noted that with a growing number of students, young adults, retirees and divorcees, the area is in dire need of more smaller-size housing options. “We see a proliferation of McMansions,” she said. “But what we truly need are more studios and one-bedroom apartments.”

A McMansion is an example of a large, spacious home with multiple bedrooms.

City says addressing housing need is key

Meeting this growing need for renters to have affordable options is a priority for the city of Merced, which is the county seat. “Merced still has a large shortage of affordable housing, and we need to keep producing more units,” said Kim Nutt,  Merced’s housing program supervisor.

The latest housing needs assessment for the city discloses there are 86,767 total affordable housing units currently available. The report furthers that “State and federal housing law defines overpayment (also known as cost burden) as a household paying more than 30 percent of gross income for housing expenses”. United States Census Bureau estimates for 2022 for the City of Merced indicate that just under 50% of households that rent are cost burdened. 

Gray said that these housing shortages – both in the Central Valley and across the state — warrant collective action, and that policy incentives are crucial to adjusting the mix of new builds. 

“Focusing on increasing supply in any dimension is a reasonable approach,” she said. “Housing filters downwards, so building any type of housing does relieve the pressure. However, in terms of long-term sustainability, it would be better to have a plan to increase density and amenities in the core of the city, rejuvenate downtown, improve transit, and build a more secure and sustainable city with a better sense of community.”

A 2022 report by the Terner Center noted that renters face not just a shortage of housing options, but of public support. “Scarcity is not just of homes but of government support, tenant protections, and public interest, which has heightened tensions and deepened inequality,” its authors wrote. 

Amid the challenge of rising rents in Merced, local governments and organizations say they are actively implementing initiatives and community efforts to provide affordable housing options and mitigate the impact.

Jennifer Flachman, Merced senior management analyst and public information officer, noted that while the city’s housing division has no control over local rental rates, the city has invested in several programs aimed at housing affordability. 

She specifically cited the HOME Investment Partnerships Program (HOME), which provides community use grants for building, buying, and rehabilitating affordable housing as well as the Community Development Block Grant Program (CDBG), which provides annual grants for the development of viable urban communities for low- and moderate-income residents. 

“We allocate HUD funds for HOME and CDBG towards affordable housing creation,” Flachman said. “However, this contribution remains modest due to the high costs of new construction.”

The 2024 allocation amounts for CDBG and HOME were just released from U.S. Department of Housing and Urban Development (HUD) funds, explains Erica Stafford, housing program specialist at the City of Merced.

Stafford said that CDBG and HOME are allocating just over $1 million and around $450,000, respectively.

As cities grow and evolve, the population’s housing needs change. The Multi-Jurisdictional Housing Element Update assesses how the participating jurisdictions’ current demands are being met and plans for projected housing needs over the next eight years. Photo Courtesy of Merced County Multi-jurisdictional Housing Element.

Among those hoping to increase the affordable housing stock is the nonprofit Central Valley Coalition for Affordable Housing, which has developed over 280 projects across the region since 1989.

“Most of my developments are affordable housing,” Christina Alley, the group’s CEO, who noted that their first development was a 27-unit project of three- and four-bedroom duplexes in Merced. “Central Valley Coalition is making safe, quality enriched, affordable housing available to people who cannot afford it.” 

Merced population growth outpacing neighboring counties

These efforts come at a time when Merced, and surrounding counties, continue to see significant population growth as residents move to the Central Valley from the coast.

Data from the U.S. Census Bureau shows that the population of Merced has increased every year since 2010, growing roughly 14 percent from 255,793 residents in 2020 to 291,920 residents as of last year’s count. 

Those increases outpace population growth in nearby Fresno County (9 percent) and Stanislaus County (7 percent) during the same time period. 

As a major metropolitan hub in the Bay Area, San Francisco offers more job opportunities and boasts higher average salaries than Central Valley cities. However, this also results in higher median rent compared to other regions.

Zumper’s April 2024 National Rent Report explains that the City of Merced’s current $1,227 median one-bedroom rent is $961 less expensive than the state median. It is also $1,683 less expensive than the median rent in San Francisco – the most expensive city in California, followed by San Diego.

“While we usually think of retirees cashing out of high-housing-price areas like the Bay Area, coming to Merced and paying all cash for cheaper homes and thus bidding up house prices,” said Gray. “The overall housing shortage pushes some of them into the rental market.”

That shortage is, she said, in part a legacy of the huge bust Merced experienced during the Great Recession, during which the county was one of the hardest-hit places in the country. 

“It took a really long time to start building again in the city,” Gray said. “So while we see a decent amount of new projects right now, the number of new units is probably not where it would have been without the recession.”