The price of rent in Southern California is projected to continue its upward climb over the next two years, as demand for multifamily units increases and vacancy rates are reduced, according to a study released by the University of Southern California Multifamily Forecast earlier this week.
The annual report, created by the school’s Lusk Center for Real Estate projects, forecasts rental increases in Los Angeles County of over $100 per month on average by 2018. The average rent in the county last year was $1,307 monthly, an increase of nearly $60 from the previous year. By 2018, the average monthly rent is expected to increase by over 4 percent to $1,416 county-wide.
The study linked construction patterns, demand for rental properties and home ownership trends, and found that despite an increase in permits in the SoCal region, nearly reaching its peak numbers seen prior to the Great Recession, the state that houses 13 percent of the nation’s population has only seen 8 percent of the country’s new residential building permit applications. The result is demand for rental properties outpacing construction.
“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.”
The 36-page report puts LA County in third place in terms of average rent, with San Diego ($1,577), and Orange County ($1,736) having the two highest projected 2018 average monthly rents. However, the growth of jobs and influx of new residents have pushed more millennials into the rental market, something it also attributed to that demographics’ tendency to put off home-buying behaviors like starting a family or having children. It noted that despite a leveling off nationally, the local population growth will offset construction increases and “rents will continue to soar."
“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,” Christopher Thornberg, Beacon Economics founding partner said in the release. “Local supply constraints, combined with solid economic growth, implies that the softening will not be experienced locally."
Vacancy rates, according to the USC study, show the figure dropping further over the next two years.
The report found that the county had the lowest vacancy rate of the four sub-regions (LA, Orange County, Riverside County, San Diego County) with only 4.2 percent of units available. In Long Beach that number was nearly half, with only 2.4 percent of rental properties open. However, the average rent in Long Beach fell short of the county average by about 40 dollars.
The study showed that despite national trends showing that more people are finding home ownership affordable and creditors are loosening the reigns a bit in granting more loans, California is not experiencing the same type of relief.
This has to do with the higher cost of real estate—the average cost of a home in California is about twice the national average—population growth, which saw four new residents move to the state for every new residence built last year, and construction of new units being skewed toward higher-end development.
Long Beach and the South Bay had the oldest housing stock on average, with 62 percent of its residential units built prior to 1970. Only Koreatown (64 percent) and Downtown LA (67 percent) had a higher percentage of older units. The Long Beach/South Bay market also had the second highest average rent in the LA region, having seen its average jump by 6.9 percent over the 2014 figure.
According to the report, only four percent of the housing stock in the city has been developed after 2000, and of that, much of it has been luxury apartment homes and condos, like the recently completed Urban Village, Pacific Court and Current complexes that have studio and one-bedroom apartments starting between $1,800-$2,100 per month.
The city has made efforts to introduce more affordable housing units, but most have been remodeled or refurbished residences, not new developments. Earlier this month, it celebrated the opening of the Anchor Place project, which will provide 120 units to homeless veterans and extremely low-income families. The opening came less than six months after the city opened Century Villages at Cabrillo, which introduced another 80 units for families at risk of homelessness.