- Average monthly rents expected to increase by about 12%
LOS ANGELES (Business Wire) – The Los Angeles region’s apartment dwellers could face more rent hikes in coming months, with little relief in sight. Average monthly apartment rents in Los Angeles County, Orange County and the Inland Empire are expected to increase from 8 percent to 15 percent through the third quarter of 2004, according to the Casden Real Estate Economics Forecast released today by the USC Lusk Center for Real Estate (www.usc.edu/lusk). “Tenant incomes won’t increase as fast as rents, so some may have to budget more for their rent payments” said Raphael Bostic, Ph.D., director of the Casden Forecast. “Apartment market conditions will remain extremely tight across the Los Angeles region well into 2004.”
Average monthly rents in Los Angeles County -- the region’s largest apartment market with 900,000 apartment units or nearly 71% of the total -- will increase about 12% through mid-2004, according to the Casden Forecast. Rents in Orange County are expected to increase about 8% over the same period. The county accounts for about 225,000 units or 18% of the regional total. Rents in the Inland Empire (Riverside County and San Bernardino County) are forecast to increase about 15%. It is the smallest of the three markets, with less than 150,000 units or about 11% of the total. The Casden Forecast analyzed data from M/PF Research, focusing on the Los Angeles, Orange and Inland Empire apartment markets. A previous forecast (December 5, 2002) looked at the region’s office and industrial markets and a future analysis will focus on the single-family residential market.
The Los Angeles region’s strong population growth and relatively healthy economy are driving up demand for rental units, but apartment construction remains at low levels despite vacancy rates of less than five percent across most of the region. In Orange County, multifamily completions have fallen to about 2,500 units a quarter, or about half the rate of three years ago. In Los Angeles County, completions are running at 1,100 to 1,500 units a quarter, well below the number needed to meet demand. Completions in the Inland Empire for the last year have averaged around 1,500 units a quarter, a marked increase from previous years.
High land prices, a lack of land for apartment construction, community resistance to multifamily development, and a shortage of subsidies for affordable rental housing have limited the supply of new units coming on the market throughout the Los Angeles region.
Some cities are taking steps to address the problem – for example, the City of Los Angeles has created a housing trust fund to help finance housing construction and also expanded an adaptive reuse ordinance that allows more flexibility in the rehabilitation of buildings for residential use. “When the housing crisis starts to reach more households in the Los Angeles region, we’ll start to see more and bolder initiatives,” Bostic commented.
Los Angeles County
“Unlike many other apartment markets in the United States, the Los Angeles regional market has not seen significant deterioration in occupancy rates in recent months,” Bostic said. Los Angeles County will remain at 95% occupancy, considered the equivalent of full occupancy through the third quarter of 2004. “This is a dramatic change from the mid-1990s, when full occupancy was rare,” Bostic added. Although the county trails the rest of the Los Angeles region in employment growth, its finance and real estate markets are comparatively strong, and its transportation and durable goods sectors are showing signs of life. And it continues to outperform the national economy. “We expect the county’s apartment market to continue its rather robust performance,” Bostic said. West Los Angeles and the South Bay are the exceptions. Rents in those markets have been flat, and are expected to increase more slowly than the county average, because of their reliance on the struggling technology and communications sectors.
Orange County
Despite a current occupancy rate of 95%, Orange County will have the slowest rent growth (8%) in the Los Angeles region. “The tight market will not translate into significant increases in rent in Orange County,” Bostic said. At 4%, the county’s unemployment rate is the region’s lowest, but its employment growth has stalled and its economy has slowed recently because of weakness in the service, communications and retailing sectors. The strongest rent growth will be in two and three bedroom apartments, reflecting growing demand from Hispanic families. “Hispanics represent an increasing share of the region’s total households,” Bostic noted. “But their relatively low incomes coupled with rapidly increasing single-family home prices keeps them in the rental market.” Pressures to increase rents will be strongest in Anaheim, which is an attractive market to immigrants and workers because of its central location and comparatively low rents. Santa Ana and Huntington Beach are also forecast to be strong rental markets. Newport Beach, a market of high-end rentals, is expected to have comparatively slow rent growth.
Inland Empire
Although the Inland Empire accounts for 21% of the Los Angeles region’s population, it has only 11% of the region’s apartment stock, reflecting a preference for single-family homes. Apartment rents are the lowest in the region, but they are expected to increase at the fastest rate (about 15%). The Inland Empire has one of the strongest economies of any region in the U.S., led by wholesale trade and business services. It also is a national leader in employment growth. This translates into strong demand for rental units, but, as elsewhere in the Los Angeles region, supply has not kept up with demand, creating pressures to increase rents.
Editor’s note: Copies of the Casden Real Estate Economics Forecast can be obtained for $75 by calling the USC Lusk Center at (213) 740-5000 or by e-mail: lusk@marshall.usc.edu.