Santa Monica is already part of the most expensive rental market in the country, and rents are expected to continue rising in the Los Angeles area through 2018, according to two studies released this week.
The 2016 USC Casden Multifamily Forecast, which was released to the public Thursday, found that despite housing construction back at pre-recession levels, demand for apartments throughout the state will keep vacancies low and rents on the upswing.
Average rents in Los Angeles County are expected to increase by $109 over their 2015 levels by 2018, according to the 36-page report prepared by Beacon Economics. The average rent had already seen a $59 increase last year over 2014, while the vacancy rate remained flat at 4.2 percent.
Rents continue to soar despite an 18 percent rise since 2014 in construction permits, which were issued for 17,869 rental units, well above pre-recession levels, according to the report.
Demand for housing was fueled by significant population growth, the report found, with the LA area accounting for one-fifth of California's new jobs, many taken by Millennials who have entered the rental market.
“Though multifamily construction permits are back to pre-recession levels and have provided some relief, population and employment growth are driving up demand faster than new inventory can hit the market," said Raphael Bostic, interim director of the USC Lusk Center for Real Estate, who oversaw the report.
"For renters, new construction has simply kept a bad situation from getting drastically worse,” he said.
California is bucking a national trend that is seeing the rental housing bull market start to wane as more people take advantage of an improving employment market and more readily available credit, according to the report.
That's in large part due to home prices that are twice the national average, as well as regulatory controls such as the California Environmental Quality Act (CEQA) and Proposition 13, which combined with the population growth to drive up home prices and construction, according to the report.
This has resulted in fewer residential building permits per-capita in California, which is home to 13 percent of the nation’s population, but issued only 8 percent of residential building permit, the report found.
“At a national level, it is clear that the great apartment bull market that started at the end of the great recession is coming to an end,” said Christopher Thornberg, Beacon Economics founding partner. “Local supply constraints combined with solid economic growth implies that the softening will not be experienced locally."
The bleak forecast for renters comes as another study, this one for the real estate website Zillow, found that the Los Angeles metropolitan area was the least affordable rental market in the nation, with renters paying an average of nearly 48 percent of their income on housing.
The numbers have dire implications for low-income renters who can no longer afford cities, like Los Angeles, which have traditionally been havens for newcomers hoping to realize the American Dream, Zillow economists said.
"This research shows that it's harder than ever for kids who grew up in the country's lowest income households to live in the places where they're most likely to succeed," Zillow chief economist Svenja Gudell said in a statement.
"We already knew that high rents and growing housing costs were hitting low-income people hardest, and it's clear the housing affordability crisis on the coasts is a barrier to their upward social mobility."
In Santa Monica, a household annual income of $100,000 is required to afford anything larger than a one-bedroom apartment, according to a study by the City's Rent Control Board ("Santa Monica Affordable Housing Disappearing," Study Says," March 9, 2016).
The full USC Casden Multifamily Forecast -- which provides detailed analysis of the 52 submarkets and two-year projections -- can be found athttps://lusk.usc.edu/casden/multifamily/report