There’s elevated demand for apartments in Los Angeles and that is not about to change anytime soon. An increasing number of households coupled with the lack of affordable housing will keep demand sky-high. Landlords and property investors stand to benefit from this trend.
The big three
New York, Los Angeles and Dallas were the leading markets for demand nationwide, for the second quarter of the year. Los Angeles has always had
low inventory and the surge in demand has been even more notable with the city absorbing 9,561 housing units in Q2 2017; the highest since Q3 2011, despite a lag in job growth. Quarterly completions often amount to just a third of those figures.
Dallas has also seen skyrocketing demand for most of the current cycle, thanks to a robust and diverse economy.
New York City has always been a hot market, but elsewhere on the East Coast, the metro areas of Boston, Washington DC, Northern New Jersey and Charlotte have also seen strong demand for apartments.
The least affordable city in the United States
Los Angeles has also been named the least affordable city for renters and buyers in the country, with median home prices far exceeding the median household income. Low-income residents can barely keep up with rent and mortgage payments and the vacancy rate rests at just 2.6%.
The high demand for housing, along with the high cost of land and the slow pace of new home development, has pushed up rental rates. The State of the Nation’s Housing report, issued by Harvard’s Joint Center for Housing Studies, states that LA is short of 382,000 housing units for extremely low-income renters.
But it is not just low-income residents who are renting LA apartments; there is an increasing number of high-income earners who prefer to rent for the convenience and flexibility that the arrangement provides.
Moreover, home prices in California are well above the national average and apartments offer a more accessible option for those looking for a place to live.
Experts believe that rental rates will continue to increase through 2018.
A study by Beacon Economics for USC Lusk Center for Real Estate states that average rents will likely surpass 2015 levels by as much as $109 in LA County and $149 in Orange County by next year.
Urban household formation
With soaring rent, you’d think Angelenos would be moving out of the city in droves. What is happening on the ground is quite the opposite; people are staying, new residents arrive each day and new households are being formed.
An increasing number of young people are moving out and this has had a significant impact on both rental units and home sales. As more millennials marry and have children, rental rates will continue to rise in LA.
This is a boon for those who have invested in multi-family properties in the city. The exploding costs of rentals, a low vacancy rate and increased competition for living space will work to their favor. Stories of “rental bidding wars” in LA show how far residents are willing to go to secure a rental in this tight market.