Strong demand for apartments are expected to continue to drive rental rates higher across Southern California over the next two years, despite a substantial increase in multifamily construction.
Despite construction permits being issued for more than 38,000 new units across the four regional markets surveyed – the highest since before the recession – vacancy rates are projected to continue their gradual decline through 2018, according to the latest USC Casden Multifamily Forecast.
The forecast, which is produced annually by the University of Southern California Lusk Center for Real Estate and prepared this year by Beacon Economics, found that average rents are expected to increase over their 2015 levels by $109 in Los Angeles County, $149 in Orange County, $84 in the Inland Empire and a $155 in San Diego County by 2018.
“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. “For renters, new construction has simply kept a bad situation from getting drastically worse.”
While the forecast suggests that the national rental housing bull market is beginning to wane as improving employment and thawing credit markets drive up homeownership, it details a very different situation in California.
The state’s home prices are twice the national average and regulatory controls – notably the California Environmental Quality Act and Proposition 13 – have combined with faster-than-average population growth to constrict the housing supply. As a result, California is home to 13 percent of the nation’s population, but only 8 percent of residential building permits.
“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."