Despite a brief uptick in construction, vacancy remains tight across the region, squeezing renters and reinforcing the need for long-term, large-scale housing investment.
LOS ANGELES – December 3, 2025 – This year’s University of Southern California Lusk Center for Real Estate (USC Lusk): Casden Real Estate Economics Forecast predicts rent increases for the next two years throughout Southern California.
The annual report, which assesses current market conditions, makes two-year projections for multifamily rents and vacancies in Los Angeles, Orange, San Diego, Ventura Counties and the Inland Empire. This year’s analysis also flags emerging macroeconomic risks, including a potential stock-market correction and rising federal debt that could further constrain already sluggish housing production. The forecast pairs its 24-month housing projections with the reality check that rebuilding into affordability will likely take sustained effort lasting a decade or more.
“Housing affordability keeps shrinking for the people who need it most. The most data-backed solution is obvious: we need more housing,” noted forecast author Moussa Diop, Associate Professor of Real Estate at the USC Sol Price School of Public Policy. “Beginning with the 2008 downturn, the US lost the production capacity needed to meet long-term demand. We can build back, but it’s going to take an all-hands approach.”
While construction in California remains weak, several states that have attracted former California residents, particularly Texas and Florida, are building at far higher rates. Adjusted for population, Texas permitted more than twice as many units as California. These Sun Belt states faced similar headwinds of high interest rates and volatile tariffs, but continued to outbuild California at scale.
Diop also notes three risks to multifamily financing: a stock market bubble fueled by AI investment, rising federal debt, and elevated interest rates for the foreseeable future. Estimating AI’s precarity is challenging considering much of the sector’s private investment lacks transparency, but investor confidence in the sector’s returns appears to be softening.Unchecked federal debt could produce a drag on the economy by pushing long-term interest rates upward. Most immediately, the near-zero interest rates of the early 2020s have evaporated, while multifamily lending slowly adjusts to the new normal. Whether caused by an economic downturn or tighter financing conditions, slow housing production ultimately worsens the affordability crisis, and renters bear the brunt.
“Rent control or subsidies may offer short-term relief, but without new supply, these policies only entrench the problems they seek to solve,” said Diop. “San Diego shows what’s possible: in just five years, it built enough supply to make average rents cheaper than in Orange County after years of similar prices. We’ll soon see whether CEQA reform improves the reliability of infill development.”
Looking ahead, the forecast expects much of the same in 2026 and 2027: slowly rising rents and not nearly enough new housing, with a handful of local exceptions. Regional conditions vary significantly in the report’s five regions: Los Angeles, Orange, San Diego, and Ventura counties, and the Inland Empire:
LOS ANGELES COUNTY
Los Angeles County’s rental market is chronically undersupplied, with years of sluggish construction leaving vacancy stuck near 5% despite a recent, temporary surge in deliveries. As one of the slowest rent growths in the region, rents rose just 0.5% this year to $2,336, not due to improving affordability, but because high luxury-segment vacancy offsets the average while tight conditions persist in lower-cost units. LA expanded its rental inventory by only 1% last year, and units under construction have dropped sharply, pointing to even slower future development. Rent growth is expected to remain nearly flat at 0.6% over the next two years, well below gains in every other Southern California market. Without sustained development of both market-rate and affordable housing, Los Angeles will continue to lag the region in renter relief and investor confidence.
October 2025: $2,336 average rent; 5.37 percent vacancy rate
October 2027 Forecast: $2,350 average rent; 5.17 percent vacancy rate
Average Annual Rent Growth: 0.64%
ORANGE COUNTY
Orange County, Southern California’s tightest and most expensive rental market, is defined by chronic undersupply and vacancy that rarely edges above 4%. Last year, the region added fewer than 0.5% of its rental stock (about 1,500 units), pushing average rents to $2,776, or 19% above Los Angeles County and nearly 10% above San Diego County. This year, affordability eroded further as rent growth slowed to 1.5% while vacancy held near 4%. Forecasted rents will rise about 2.5% annually over the next two years. Although new construction is projected to increase to roughly 2,500 units annually, overall supply continues to fall far short of demand, particularly in coastal and North County communities. Despite an incoming spike in deliveries, Orange County remains fundamentally constrained and unaffordable. Without large-scale, sustained development, Orange County will remain fundamentally constrained and among the least affordable markets in Southern California.
October 2025: $2,776 average rent; 3.84 percent vacancy rate
October 2027 Forecast: $2,859 average rent; 4.21 percent vacancy rate
Average Annual Rent Growth: 2.52%
SAN DIEGO COUNTY
San Diego County stands out as Southern California’s most responsive major rental market, where pro-housing policies and steady development have kept rents meaningfully competitive. Over the last five years, San Diego added nearly twice as many units as Orange County (about 23,000 vs. 12,000), a pace that helped hold vacancy near 5% and kept rent growth to just 0.26% this year. As a result, average rents now sit roughly 9% below Orange County, a notable shift from five years ago when two markets were nearly identical. Over the next two years, rent growth is expected to pick up to around 1.9% as vacancy tightens and new deliveries slow. San Diego’s commitment to denser, transit-oriented development helped stabilize rents and offers a replicable model for other Southern California counties.
October 2025: $2,535 average rent; 5.54 percent vacancy rate
October 2027 Forecast: $2,563 average rent; 5.18 percent vacancy rate
Average Annual Rent Growth: 0.99%
VENTURA COUNTY
Ventura County has firmly ensconced itself as a high-cost, low-delivery rental market, keeping it among the most expensive regions in Southern California. Average rents reached $2,628 this year, 13% higher than Los Angeles County, after posting the region’s third-fastest five-year rent growth at 3.8%. Vacancy temporarily rose to 4.8% after a rare wave of new deliveries, but has historically held below 5% for years due to limited construction. Rent growth is expected to moderate to about 1.2% over the next two years as vacancy tightens back toward 4%. While recent development tilted toward the middle tier of the market, overall volume remains too low to meaningfully shift affordability.
October 2025: $2,628 average rent; 4.77 percent vacancy rate
October 2027 Forecast: $2,681 average rent; 4.61 percent vacancy rate
Average Annual Rent Growth: 1.19%
INLAND EMPIRE
The Inland Empire remains Southern California’s most affordable rental market, bolstered by its logistics-driven economy and steady inflows of coastal county expats. Average rents reached $2,112 this year, about 10% below Los Angeles County and 25% below Orange County, even after five years of strong 3.6% annual growth. A notably responsive construction cycle kept conditions competitive, with vacancy at 6.4%. As new deliveries slow and absorption rises, rents are projected to climb 4.6% over the next two years to roughly $2,210. While its affordability advantage is gradually narrowing, The Inland Empire stands out as one of the region’s few markets where added supply has meaningfully restrained rent growth, underscoring the value of sustained development as demand continues to climb.
October 2025: $2,112 average rent; 6.36 percent vacancy rate
October 2027 Forecast: $2,166 average rent; 5.89 percent vacancy rate
Average Annual Rent Growth: 1.90%
About the USC Lusk Center: The University of Southern California Lusk Center for Real Estate seeks to advance real estate knowledge, inform business practice, and address timely issues that affect the real estate industry, the urban economy, and public policy. The Lusk Center produces relevant and timely real estate research, supports educational programs for students and executives, and convenes professional forums that bring together academics, students, business executives, and community leaders. For more information please visit www.usc.edu/lusk.