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California’s Affordable Apartment Buildings Shortage Signals Trouble

When it comes to the ability to provide housing for renters, California falls 48th out of 50. With multi unit residential buildings at saturation, prices are still increasing and Californians are struggling to pay the rent.

This spells trouble for three reasons:

High Prices Impact Renters’ Financials

In 2016, 77% of renters classified as “extremely low income households” were putting more than 50% of their income towards renting costs. 90% of those extremely low income households were putting more than 30% of their household income towards rent.

For renters that the National Low Income Housing Coalition classified as very low-income households, the numbers weren’t much better: 85% were spending more than 30% of their pay on rent in apartment buildings, while 18% were spending more than half of their paychecks towards rent in multi unit residential buildings.

In fact, high rental prices have directly contributed to rising homelessness rates in Los Angeles, which increases the financial burden on the city and its taxpayers.

No Chance for Renters to Save a Down Payment

When the majority of renters are spending more than 50% of their paycheck on rent, they don’t have enough cash left over to save up to buy a home. This means that higher-end homes sit on the market for ages, while there aren’t enough mid-tier and lower-end houses to meet demand. Accordingly, prices soar on those mid-tier and lower-end houses, making it even harder for those in apartment buildings to consider purchasing a house. While the 20% down payment is largely a thing of the past, LA renters struggle to even afford a 5% or in some cases a 1%, down payment. When the average house price is more than $570,500 , coming up with $30,000 in cash is beyond most renters in the city.

Few Can Afford Buying Multi Unit Properties

In less saturated markets, business-minded renters can afford to buy a multi unit property, live in one unit, and lease out the others. This decreases the number of renters and also provides more rentable units. In California, however, renters can’t afford to buy or fix up these properties. Additionally, while owners interested in selling multi unit properties because of the enormous cash cow these properties represent, it is difficult for potential buyers to navigate the ever-changing housing laws. It can also be emotionally difficult to sign up for a $1,000,000 loan with the amount of uncertainty in the market. With many people “waiting to see”, the market is stagnating and buying energy is dwindling because of high rental prices.

Solutions on the Horizon?

The L.A. city council has passed laws to curtail short-term rentals like Airbnb in an effort to provide more long-term rental properties to renters. Additionally, ordinances have been passed to ease up on historic housing laws and make it possible to add more units for renters. Construction of new, smaller units, called “accessory dwelling units” may also help in alleviating pressure on the Los Angeles housing market. Only time will tell if these measures are enough.

For more information on buying and selling multi unit properties, the state of the LA housing market, or information on rental laws, contact us.