Article by Joseph Ascenzi Apartment rental rates will rise dramatically between now and the third quarter of 2004, according to an academic study. The Casden Real Estate Economic Forecast, released Feb. 6 by the Lusk Center for Real Estate at the University of Southern California, predicted apartment rents in Riverside and San Bernardino counties will climb about 15% during the next 18 months. Apartment rental rates in Los Angeles County will rise about 12% during that time, while rates in Orange County will increase about 8%, the report found. Tenant incomes won't grow as fast as rents, so renters in all four counties could be in for a rough ride well into next year, said Raphael Bostic, director of the study. The overall apartment market will remain tight during the next 18 months, mainly because all four counties are woefully undersupplied with affordable apartment housing, Bostic said. "It's pretty basic economics," Bostic said of the tightening market. "There's not enough supply and there's going to be increased demand, which will put more pressure on renters." The Casden prediction is based on the economy recovering during the next 18 months, Lusk Center forecasters expect unemployment to drop during that time. Of the three regions, the Inland Empire is the most in need of more apartment housing: it has the fewer than 150,000 apartment units. Its apartments make up only about 11% of the apartment market in all three regions, according to the study. By comparison, Los Angeles County has 71% of the apartments in the study area and Orange County has 18%. Although 6,000 apartment units were built in the Inland Empire during the past year, the two-county region is still undersupplied in apartments, Bostic said. Few apartments have been built in the Inland Empire during the past decade because the single-family home market in the region has been so strong, Bostic said. "Apartment construction hasn't happened in all of Southern California like it should have during the past 10 years," he said. "We aren't at a crisis yet, but I think we may be getting close to that point in Los Angeles and Orange counties. We're getting to the point where everyone will have to acknowledge that there's a problem. In the case of the Inland Empire, single-family homes have remained reasonably priced, so there has been little incentive to build apartments. But in all three regions, other factors have contributed to the shortage of apartment construction since the early 1990s, Bostic said. Opponents organize to keep apartment projects out of their neighborhoods. Developers are reluctant to build apartment complexes because they fear lawsuits over construction defects. "That [fear of being sued] has hurt the condominium industry during the past 10 years, and it's starting to creep into the apartment industry and have an impact," Bostic said
February 10, 2003