If you ask Mayor Eric Garcetti, Los Angeles needs at least 100,000 new housing units just to keep up with demand. Harvard's Joint Center for Housing Studies says it's more like 382,000 units — and that's just to serve extremely low-income renters. The California Housing Partnership Corporation concludes that the county needs 551,807 more affordable units.
What we're getting isn't even close.
So far in 2017, there have been 14,835 permits issued to build multifamily units, mostly apartments, in Los Angeles County, according to a new analysis from property management technology firm RealPage. That's actually a decrease of 3.9 percent compared with the same time last year.
That could be bad news for a metro area where a household has to officially be wealthy just to be able to rent an average apartment and where housing costs have become so out of reach that they're contributing to a sharp increase in the number of Angelenos living on the street.
“If you look at the bigger picture, the L.A. number is basically flat,” says Greg Willet, chief economist at RealPage. “Across the country we are seeing that unit growth number slow down a little bit.”
Indeed, the firm looked at U.S. Census Bureau data to conclude that the nation as a whole has seen a 25.3 percent drop in apartment production since this time last year. Willet believes that investors and developers are becoming gun-shy about the prospect of getting a healthy profit if they build apartments. “It's about capital availability,” he says.
What's more, a cool-down in rent increases could be confirming their fears. A wave of new apartments downtown, for example, has slowed the pace of rent increases and inspired landlords to offer free parking and a month's free rent. “Rent has started to slow down, and that will make capital forces hesitant,” Willet says.
Los Angeles was joined by New York, Dallas, Atlanta, Austin and Washington, D.C., on a list of the top 10 metro areas that produce the most apartments but have so far this year registered an annual decline in construction permits, according to RealPage's analysis.
Downtown real estate agent Bill Cooper says the flat figures for L.A. are even more dire than they appear because, he believes, most of that planned construction involves high-end luxury units and not the kind of apartments the average Angeleno can afford.
“They're basically filling downtown with luxury apartments,” he says. “There's only so many people who can pay those rents.”
Even as planned building is flat or even on the decrease, construction that was seeded two and three years ago will result in a peak year for new apartment openings in 2018, Willet says. As many as 18,000 units could come online, much of it in downtown, Hollywood and other core areas, he says.
That's a mixed bag: It's still not enough, and it's mostly luxury housing. Cooper says the glut downtown could result in rents that aren't as outrageous as L.A. has experienced in the last few years.
“You're going to see apartment pricing change,” he says. “I think it's going to have to make a correction in the next few years.”
*Correction: We misinterpreted RealPage's definition of the L.A. metro area; we stated that the data encompasses Orange County. The folks at RealPage told us today it does not.
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