A new rent forecast released Tuesday predicts Southern California tenants will face continued rent hikes and falling vacancy rates through 2018.
Orange County apartment rents, already the highest in the region, are forecast to rise by at least $149 a month by the end of 2018, up 9.4 percent from 2015 levels, the USC Casden Multifamily Forecast predicts.
Only San Diego County will see a bigger increase in apartment rents during the next 21/2 years. Rents there are projected to grow by $155 a month, or 10.9 percent, the forecast said.
Average rents are expected to increase over 2015 levels by $109 in Los Angeles County, an 8.3 percent increase, and by $84, or 7.3 percent, in the Inland Empire.
“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, which oversees the annual forecast. “For renters, new construction has simply kept a bad situation from getting drastically worse.”
On the other hand, the forecast had one glimmer of hope for rent-stressed tenants: The rate of increase is slowing.
In Orange County, for example, the average apartment rent in a building with five or more units increased 5.4 percent in 2015, the USC analysis of U.S. census rent data showed. This year’s rent is projected to rise 3.6 percent, followed by gains of 2.8 percent and 2.7 percent, respectively, in 2017 and 2018.
Similar decreases in rent gains are forecast elsewhere as well.
Rent hikes are expected to drop to 2.5 percent in 2018 from 4.7 percent in 2015 in Los Angeles County; to 2.0 percent from 5.1 percent in the Inland Empire; and to 2.8 percent from 5.9 percent in San Diego County.
Still, Southern California is immune to some of the forces that are helping to keep rent in check in other parts of the nation, the report said.
Nationwide, a bull market in rental housing “is beginning to wane,” the Lusk Center said in a statement.
“Improving employment and thawing credit markets (are driving) up homeownership,” according to USC.
In California, however, home prices are twice the national average and regulatory controls such as the California Environmental Quality Act constrict the housing supply.
Luxury apartments also make up the bulk of new construction in Southern California, providing little relief to middle- and low-income tenants, the report said. In addition, apartment construction rates are lagging the nation as a whole.
“Local supply constraints combined with solid economic growth implies that the softening will not be experienced locally,” said Christopher Thornberg, founding partner for Beacon Economics, which prepared this year’s USC forecast.
The report showed the Newport Beach-Laguna Niguel submarket had the region’s highest apartment rents, followed by Irvine, Los Angeles coastal communities and, in fourth place, the Seal Beach-Huntington Beach submarket.
The south Los Angeles, Palm Springs-Indio and Redlands-Fontana-High Desert submarkets had Southern California’s lowest apartment rents.