Residential real estate experts and economists have projected apartment rent movement and vacancy over the next two years for Southern California and the news is not good, particularly for L.A. County.
The Casden Real Estate Economics Forecast, presented annually by USC’s Lusk Center for Real Estate and Beacon Economics of Los Angeles, reported Wednesday on rising rents and falling vacancies for Los Angeles, Ventura, Orange and San Diego counties and the Inland Empire.
Rents in L.A. County are expected to jump $136, or 1.1 percent, to $2,373 by 2019 – the largest increase among the five regions – while Ventura County rental rates should increase by $98, the regions’ lowest amount, wrote Lusk Center Director Richard Green and a team of Beacon economists in the report.
L.A. County already has the highest rent at $2,237 a month, and vacancy rates are expected to drop to 3.91 percent from the current 3.94 percent. Despite the tight market, multifamily construction permits fell 8 percent last year compared to the prior year, the first decrease since the Great Recession, the forecast said.
Burbank-Glendale apartment rents had the second highest rents in the county of $2,477 a month. Palmdale-Lancaster came in fifth at $1,690.
Green and the Beacon economists wrote that the significance of the overall increases is that rent growth is outpacing income growth, and that is challenging to businesses trying to recruit workers here from other states.
In affluent Ventura County, the average apartment rent is $1,956 a month – the lowest in the studied areas and it has the tightest market – but the authors expect the rent to climb to $2,054. Rents rose 2.6 percent this year from the prior year.
Vacancy rates of 3.78 percent are anticipated to also rise to 3.93 percent. But there’s hope in sight. In July, year-to-date permits for new construction in the county were up 63 percent from the same period a year ago.
Nationally, Green and the Beacon team said that the economy has recovered but homeownership, while improved, has fallen behind. Wages, population and the number of those working has also risen but those able to buy homes has not.
Comparatively, in the 1960s, 1.4 million homes were built in an average year. But seven years after the Great Recession new residential construction hasn’t returned to normal levels. In fact, between September 2016 and August 2017, there were only 1.2 million residential starts, 16 percent down from the long-term average, the forecast said. Single-family home construction specifically is down 18 percent.
In L.A. County, home ownership has fallen to 45.1 percent in 2015, compared to 46.9 percent in 2010.
Affluent Ventura County has a high rate of homeownership but a slowing economy, and one that hasn’t returned to pre-Great Recession levels. Homeownership is down there as well, but apartment and home construction is underway and the authors expect rents and vacancies will increase in the short-term.
Green said while the situation of not enough housing comes as no surprise to anyone, the increases in wages and employment haven’t resulted in more home ownership.
“The combination is a key stressor in the availability and cost of apartments and has an increasing impact on the local economy,” Green said in a statement.
The likely cause is homeowner equity and regulations, the authors wrote. First-time homeowners over the past 10 years have lost equity in their first homes, or didn’t build up enough equity to buy a more expensive home.
As that class is the traditional majority of new home buyers, the authors said, the result is a slower demand for new housing.