By Priyanka Deo | Neon Tommy Staff Reporter
Experts David Kim (center) and Dwight Jaffee (right) debate on housing with Richard Green moderating | Priyanka Deo/NeonTommy
Already finding rent expensive? Bad news: Rates are expected to keep increasing.
Tenants already pay high rents in Los Angeles and have trouble finding affordable housing. In fact, a University of California Los Angeles study marked our city as the nation’s most unaffordable rental market in 2014. The same study discovered that on average, renters spend just about half of their annual income on rent, when 30 percent is deemed prudent.
Rising rent
The 2014 USC Casden Multifamily Forecast estimated rent values to continue to rise throughout the city as the current demand for rental housing overtakes the completion of new spaces. The discussion on the forecast held in downtown on Wednesday included a panel debate with experts predicting the future of multifamily housing.
The root cause of this problem is low incomes and high rental values, according to the the forecast. While L.A. rents are currently higher than both New York and San Francisco, L.A. has a lower average income than either city. Nationally, L.A. has a high ratio of renters as compared to home owners. While the national average for renters is approximately 35 percent, Los Angeles’s average is over 50 percent.
The forecast analyzed Southern California’s four market regions. Apartment vacancies dropped across all of them over the past year. In L.A. County, the vacancy rate dipped from 10.8 percent to 3.3 percent in one year. Orange County experienced a 14 percent decrease. Although these percentages are significant, other areas had more severe vacancy rates. The Inland Empire showed a 30 percent decline to a 3.8 vacancy rate.
With few rental spaces available, it is not unexpected for rent prices to rise. Economists expect the average rent in L.A. to increase by over 8 percent by June 2016. Currently, citizens in L.A. pay anywhere from $800 to just over $2500 per month. With wages remaining flat across the country, this poses a problem.
“The affordability issue is a cause of great concern,” said Richard Green, director of the USC Lusk Center for Real Estate. He co-authored the forecast along with USC researchers Vincent Reina and California Association of Realtors Senior Economist Selma Help.
Even though both employment and the overall economy have improved, renter incomes in Los Angeles remain stagnant.
“About half the people in L.A. County are renters and about half the renters now live in multifamily housing property,” said Green. The city is mostly multi-family housing.
Multifamily homes
More than 7,500 multifamily spaces were added in Los Angeles from 2013 to 2014. Although this was more than a 60 percent increase from last year, there was still a high demand and low supply of available rentals.
According to the forecast, as of June 2014, renters in L.A. paid an average of about $1,700 per month. This was the highest in the region and almost a four percent increase from 2013. The average in Orange County and San Diego County was approximately $1650 and $1500 per month respectively. The Inland Empire, which had the most affordable rental rates; around $1,100 per month; saw the sharpest increase at over 4 percent.
On Wednesday, expert panelists debated the forecast trends and whether the federal government should play a role in housing finances or not. David Min, a nationally recognized expert on financial markets regulation, felt that a government role was important since [the government] has always played a major role in multifamily housing financing since the early 1900s. Dwight Jaffee, Berkeley professor of Banking and Finance, argued more for privatization but did state that the federal government was necessary for housing financing policies such as rental mortgages.
All three experts stated that whatever the outcome may be, nothing is expected to lower rent rates in the near future.
“Within the Republican party, there’s no agreement on what to do,” Green explained. “So if you have a fight within the Republican party on what to do let alone a fight between Democrats and Republicans on what to do, it is hard to imagine that anything will happen anytime soon. “
While the government continues to disagree, the average rent in all four regions is only expected to increase over the next two years.
Los Angeles citizens can either prepare themselves to pay a higher rent or work on getting that promotion.
The forecast contains additional analysis for all 52 submarkets that comprise the four regions in Southern California. The complete USC Casden Multifamily Forecast will be made available online on Wednesday October 8.
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2014 Rental Values in LA Regions (Approximate values)
LOS ANGELES COUNTY
Highest Average Rent: Santa Monica/Marina del Rey- $2618
Lowest Average Rent: Antelope Valley- $829
ORANGE COUNTY
Highest Average Rent: Newport Beach- $2223
Lowest Average Rent: Anaheim- $1300
INLAND EMPIRE
Highest Average Rent: Rancho Cucamonga/Upland submarket- $1384
Lowest Average Rent: Victorville/Outer San Bernardino- $797
SAN DIEGO COUNTY
Highest Average Rent: Carlsbad/Encinitas/Del Mar- $1834
Lowest Average Rent: Escondido- $1119
This article originally appeared on Neon Tommy. Reach Neon Tommy Staff Reporter Priyanka Deo here.
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