L.A. Is Doing Too Well for High Rents to Fall
City Hall is well on its way to requiring developers to help pay for affordable apartments, the governor recently signed legislation that could lead to $4 billion in new housing funds, and a slew of new units downtown has goosed the vacancy rate and slowed rent increases.
But the just-released 2017 USC Casden Real Estate Economics Forecast finds that these events are but glimmers of hope in a world where rents will continue to grow and the vacancy rate will continue to shrink, if only by a hair. Report co-author Richard K. Green, chair of USC's Lusk Center for Real Estate, says the dark forecast is a symptom of Los Angeles' role as a crossroads of the contemporary world.
"One thing about global cities is they're all expensive," he says. "New York, London, Sydney — you'll never build enough to meet the demand of a successful city."
The forecast calls for Los Angeles County rents to increase by an average of $136 a month by 2019. In Orange County, that figure is $149; for San Diego, it's $121. L.A.'s average rent will go from $2,237 to $2,373, according to the report.
L.A. County's vacancy rate, which reflects the slice of rentals open to new residents, will actually decrease slightly, from 3.94 percent now to 3.91 percent in two years, researchers, who included a team from private firm Beacon Economics, concluded.
"While the county effectively reached full employment in 2017 — an unemployment rate of 4.5 percent — the economy has advanced at a somewhat subdued pace," according to a summary. "Population increases combined with more millennials entering their late 20s and early 30s will drive multifamily demand as home ownership remains low."
If high rents are a sign of a healthy economy, they can also be a warning that these go-go times could come to a halt. Housing experts have warned that L.A.'s rents are so out of reach they could dissuade startups and out-of-state companies seeking to set up shop here. In fact, it has been reported that a key reason behind Toyota's move from Torrance to Texas was that its local workers could no longer afford to live in Greater Los Angeles.
“The high cost of housing is a huge challenge for employers attempting to recruit out-of-state talent," forecast co-author Christopher Thornberg of Beacon Economics said in a statement.
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Lusk Center director Green says there are only two solutions: Build more housing and subsidize rent for those who can't afford it. "If you want to have people here to do the jobs we need, you'll also need subsidies," he says.
Action from state legislators and City Hall to underwrite affordable housing development is a start, he says, but "it almost certainly is not enough."
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