If Los Angeles' housing crisis has a singular setting, it's downtown.
The onetime magnet for the homeless has become, in the span of 10 years, a magnet for the young and wealthy, with median two-bedroom rents reaching $3,350 last year. Buoyed by South Park, the Old Bank District and the Arts District, DTLA has become Venice East, a crossroads of nightlife, creative classes and bohemianism anchored by a Whole Foods, breweries and the Bloc shopping center.
But there's been some grumbling that the dream downtown could be crumbling. Amid continued high rents regionwide, one of the hottest communities in the city for the young and prosperous has seen lease rates, in the assessment of Crystal Chen, marketing manager at rental listings site Zumper, flatten out.
“While prices may not be decreasing yet, there has not been a steady growth in prices either,” she said via email.
Twelve months' worth of data on the one-bedroom median rental price downtown, provided by Zumper, shows an increase from $2,450 to $2,550 from August 2016 to last month. In the middle of that span, rents actually dipped, from $2,540 in October to $2,480 December.
The 4 percent annual increase in rents downtown compares with a nearly 5 percent increase citywide posted by Apartment List. But an analysis by real estate data firm CoStar Group concludes that an even smaller rent increase, 0.9 percent, happened downtown during a 12-month span ending last month. The firm also revealed that having thousands of new or redeveloped units hitting the market at the same time has resulted in a 17-year high vacancy rate of 12 percent downtown.
If badly needed units are being built, and their presence is finally causing rents to hit the ceiling, the experts who argued that greater supply, regardless of price, would alleviate the housing crisis could be right.
Their theory is that even high-end rentals will eventually force rents downward as wealthy folks who can afford them leap for new units and leave the downmarket competition alone instead of driving up prices there. “With nearly 3,000 units expected to be built in 2017 and 4,000 in 2018, supply pressure will likely continue to push vacancies higher and weigh on rent growth,” according to CoStar's downtown analysis last month.
Builders are responding with deals, including, in some cases, first-month-free leases and parking concessions, experts say. “The sheer amount of new apartments being built all at once and hitting the market all at once has caused a supply-and-demand issue,” says CoStar senior market analyst Stephen Basham.
Rents are being depressed as a result, he argues.
“All of these buildings target wealthy renters, people making $80,000, $90,000, $100,000 a year and up,” he says. “There's only so many of those people out there.”
Indeed, Chen of Zumper says there has been a “lost of interest in the luxury housing market” that's also being seen in parts of San Francisco. It “leads to these expensive apartment buildings offering concessions like a month of free rent, cheaper security deposit or a free parking spot,” she says.
“Since there are a lot of these types of buildings in downtown L.A., prices would seem like they would go down in coming months,” Chen adds. “The priciest neighborhoods seem to have hit a ceiling that people are willing to pay before there is a migration to the outward neighborhoods.”
Longtime downtown activist Brady Westwater is skeptical, however. He thinks rents will continue to increase because urban Los Angeles has fallen so behind on building much-needed units. He says the vacancy rate downtown is an anomaly because so many new units have hit the community at the same time. They'll all fill up to near zero vacancy, Westwater believes.
“We just had a record number of incredibly large products open up,” he says. “Of course they're going to be empty. They just opened. Things are leasing regularly.”
He advises taking downtown's pulse in a year and determining if these new buildings have been mostly occupied. “It takes a while to occupy them,” he says. “There's no difficulty leasing.”
Downtown real estate agent Bill Cooper, who says he sold Johnny Depp's downtown penthouse last year, agrees that the new buildings will fill up in a year to 18 months. But he also sees some leveling off in rents as a result of the building boom, which CoStar projects will continue through 2022.
“Developers, I think, are going to have to look at their pricing at some point,” Cooper says. “Every time you turn around, a new building is opening and putting 500 to 1,000 new units on the market. We're running out of people who can spend $4,000 a month on an 800-square-foot apartment. It's not sustainable.”