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Vacancies--for Now : Apartments More Plentiful Than Year Ago, But Experts Predict Turnaround by 1990s

Times Staff Writer

More units in large apartment complexes were vacant in the first half of this year compared to last, according to the Apartment Assn. of Orange County, and rent increases were small.

But renters had better enjoy all that now, because experts say apartments in Orange County will become so scarce and expensive within the next few years that it could engender a movement for rent control.

“Two years from now you’ll see such a significant change in the market that by the early 1990s rent control will have raised its head,” said Ken Agid of the Marketing Department, an Irvine consulting firm.

The vacancy rate hit 6.2% in the spring, according to a survey for the apartment association, a trade group of landlords of larger complexes.

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That was up from a low 3.6% rate last fall and an even lower 3.4% rate in the spring of 1987.

The county saw an apartment construction boom--now cooling--in 1986 and 1987 that resulted in more apartments this past spring than renters.

The strong supply helped contain rents, which probably rose no more than 4% over the preceding year, or about the same rate as the cost of living in the county, said William H. Kraus, executive vice president of the apartment association.

The spring survey found that a one-bedroom apartment ranged from $596 a month in an older complex to $806 in a newer building. Two-bedroom units ranged from $761 in older buildings to $939 in newer buildings, according to the apartment association survey, which questioned managers of 13,483 units in the county.

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Almost all the new apartment complexes have been built in the southern half of the county.

About 42% of the county’s residents live in its estimated 200,000 apartments, said Kraus, and the percentage creeps up a point or two each year. Not too far in the future, Kraus said, half the county’s residents will be renters as the cost of owning a home stretches beyond more people’s reach.

That is going to create a big crunch, say experts, because apartment construction in the county--as in the rest of the nation--is slowing down.

“Even in the last couple of months, I think things have turned around and vacancy rates are going down again,” said Michael L. Meyer, managing partner in the Newport Beach office of Kenneth Leventhal & Co., an accounting firm that specializes in real estate.

“Within a year or so, we’ll be back to a more typical situation for Orange County--more demand than supply.”

Federal tax reform in 1986 removed a lot of the tax incentives for building apartments. Even so, Orange County was one of the few places in the nation last year where apartment construction remained strong, Meyer said. The only other places were in booming areas of the East Coast.

Now, however, even developers in Orange County are building fewer apartments. Building permits for multifamily dwellings--which also include condominiums--fell to 8,515 for the eight months ending Aug. 31, down from 12,196 at the same time last year.

High land prices mean it costs more to build apartment complexes and that rents will be higher.

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And most apartment dwellers who could afford to buy a home have already bought and moved out in the rush to take advantage of low interest rates, Meyer surmised, meaning more people will now be staying in apartments rather than moving out into their own homes.

The vacancy rates are probably even higher at the new apartment complexes that sprung up in the past two years, most of them in the booming southern half of the county around new developments such as Rancho Santa Margarita and Robinson Ranch, experts say.

“Those areas aren’t urbanized yet and the apartments were built in anticipation of the areas becoming more urban and getting more jobs,” Agid said. “Eventually that will happen.”

But it will still take a while, perhaps as much as two years, for the market to get extremely tight again.

According Laguna Hills consulting firm Research Network’s estimate, builders planned about 9,000 apartment units in 1986, the peak year; 7,000 last year, and nearly 6,500 this year. That’s still far more than the 2,000 to 3,000 units builders usually constructed in the county.

“There are signs the market is still softening,” said Matt Disston of Research Network. “You can see it most clearly in the static lease rates and in increased marketing efforts of apartment complexes, where they’re offering things like a month’s free rent or free appliances to keep their apartments leased up.”

Meanwhile--anticipating low vacancy rates and high rents ahead--foreign investors have joined U.S. pension funds and other institutional investors combing the Orange County market for apartment complexes to buy, Disston said. But big rent increases could bring political trouble, say experts such as Agid, in the form of agitation for rent control.

While the thought causes shudders over at the apartment association office in Garden Grove, Kraus agrees that the coming scarcity of apartments and high rents will probably bring a movement for rent control.

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“Obviously we don’t think rent control works,” he said. “But there certainly is the potential out there.”

A Los Angeles Times poll of 600 Orange County residents in June found that 61% agreed with the statement that “local governments should control the amount of money that landlords can raise housing rents each year.”

Another 30% disagreed and 9% didn’t know.

An even higher 74% of renters agreed with the statement.


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