Westside Housing Prices Soar; No End Seen
Each year, the traffic on the Westside get more congested. New commercial construction blots out residential views. Developers and environmentalists battle for every remaining piece of open space. Parking becomes increasingly scarce. Homeowner groups raise their voices in protest.
And real estate prices in the Westside continue to soar to new heights.
Forget the complaints about the crumbling quality of life on the Westside. Hordes of affluent home buyers are lining up, sometimes with millions in cash, to grab a chunk of land as close as they can to the Pacific Ocean.
Outpacing the U.S.
The prices are staggering. Middle- and upper-income families are being frozen out of the modest Westside neighborhoods. Former blue-collar communities are becoming havens for starch-collared corporate executives. And in a city as celebrity-conscious as Los Angeles, real estate agents are becoming stars, sought after by the rich and famous.
Economists predict that real estate prices in the section of Los Angeles County bordered on the north by the Santa Monica Mountains, on the south by Los Angeles International Airport and on the east by Western Avenue will continue to outpace all but a few communities in the United States during the next few years.
The average sales price of single-family homes jumped more than $100,000 in at least 10 Westside areas over the last year, according to sales reported through multiple listing services. The average sales price in several other communities jumped more than $200,000.
In the sharpest increase reported, the average sales price of a single-family home in Playa del Rey rose 63% in 1988, leaping to a new high of $603,000. And that’s in an area troubled by airport noise. The listing prices were even higher.
And the homes for sale on the Westside were on the market only half as long as they were a year ago.
Although the real estate boom engulfed numerous areas of the Southland, particularly such places as Pasadena, Glendale and the West San Fernando Valley, the surge pumped up the already-steep prices in numerous Westside communities.
The average sales price of single-family homes in Beverly Hills and Bel-Air already top the $1 million mark. Next year, Brentwood probably will join that list. Malibu and Pacific Palisades are only a few years away.
Why the house-buying frenzy? What is driving up the asking and selling prices of Westside bungalows to mansion levels?
Industry experts say it’s a simple imbalance between supply and demand. Available Westside land is almost used up, and with a booming regional economy luring people from throughout the country to Los Angeles, more and more people are lining up to try to buy the best properties.
“I think the only thing that would make the escalation stop would be if the financial services community doesn’t make as much money available to home buyers,” said Michael Salkin, an economist and senior vice president at First Interstate Bank. “But I don’t think the trend will reverse until the state of California no longer attracts households for economic reasons.”
Little New Housing
Although population growth on the Westside has lagged behind the rest of Los Angeles County--rising only 8% since 1980, compared with 12% countywide--the fixed housing supply has dramatically lifted sale prices.
“It’s the same phenomenon that occurs in San Francisco, where even if the population rises only slightly, there is still very little new housing being built,” said Salkin.
“Prices won’t stop increasing until the population drops or the economic strength shifts to other parts of the country.
“The fundamental fact is that you’ve got a lot more people chasing houses than there are houses available.”
In the last 12 months, while the demand for housing surged throughout Southern California, the Westside was targeted by a huge influx of home buyers. Industry analysts say that the already limited inventory of housing previously has been sold in only three months. In the last few years, it would have taken eight to 12 months to exhaust the supply of single-family homes.
“The price pressures on the Westside are reflective of much of coastal California,” said Joel Singer, chief economist for the California Assn. of Realtors. “You will continue to have rising prices on the Westside because of the scarcity of land. As the job market on the Westside continues to grow, it will promote a further demand for housing, but it’s not going to generate new housing.”
The result will be a continuing trend of what real estate agents call multiple bid offers, where groups of prospective buyers try to outspend each other for newly listed properties. Singer and other economists say they haven’t seen anything like it since a similar housing boom in the late ‘70s.
Few New Homes
Ben Bartolotto, director of the Construction Industry Research Board, said the small supply of new homes on the Westside will continue to drive existing home prices up.
“Of all the construction in Los Angeles County, the Westside accounts for less than 10%,” he said. “The only things that are being built are either condos or very large and prestigious single-family homes.
“When you combine that with the already high land prices, you’re talking about a lot of money.”
Real estate market watchdogs point to foreign investment in Westside properties as another reason house prices are jumping off the charts.
“The increase of foreign capital is the wild card,” Singer said. “Clearly it increases the demand and pushes the prices even higher. But there’s no way to quantify it.”
However, industry experts say that although they expect Westside real estate prices to continue to rise, they will rise at a much slower rate than they did in 1988, when home prices rose an average of 23%.
“Last year was crazy,” said Jon Douglas, president of the real estate company which bears his name. “I’ve never seen anything like it.”
Some industry analysts are concerned that the rising price of homes throughout the Westside may begin to change the character of the community. They say that the elements that make the area so desirable--good weather, lots of cultural offerings, new jobs and overall panache--are shifting the base of the community from just very expensive to nearly exclusive.
“What the numbers mask is that you’ve got a different population in the Westside now, more affluent,” said Salkin. “In a situation like that, the cultural, the ethnic and the employment characteristics will change, but it doesn’t happen overnight.”
The overall effect of the decrease in moderate housing could be a reassessment--and ultimate rejection--of Westside properties by prospective home buyers, according to some real estate experts. But even they predict it will be years before there is any significant drop in the price of housing.
Drop in Value?
“The future housing situation depends on a lot of different scenarios such as the increasing traffic problem and the effect that has on new (commercial) building in the area,” said Kathleen M. Connell, chair of the Center for Finance and Real Estate at UCLA’s Graduate School of Management. “If there continues to be a lack of affordable rental housing and people can no longer afford to work on the Westside, then I do think you will see a revaluation of what has been a substantial premium of living on the Westside.
“I don’t anticipate a great drop in value, but whether it increases as rapidly as in the past is doubtful,” she said.
However, Douglas said the factors that make Westside housing so expensive are not likely to change. He said that in the last decade, the price of detached single-family homes there has risen an average of 16% each year.
“Because of the rent-control atmosphere that exists in places like Santa Monica, you’re not going to see much new development,” Douglas said. “So the existing base price of residences in the area will continue to go up.
“Over the last 20 years, with the exception of a couple of recessions, Westside real estate values have never gone down. I think that will continue to happen as long as people can continue to afford those properties on the Westside.”
Highly Affordable
If that’s the case, Westside properties will sell at at escalating rates for a long time. First Interstate’s Salkin said, however, that by world standards, the Westside is highly affordable.
“When you compare it to places like Tokyo and Hong Kong, it’s not expensive,” he said. “America is still fairly underpriced compared to the rest of the industrial countries. We’re a bargain basement society when it comes to houses.”
Statewide, the median sales price of a home rose from $150,000 in January, 1988, to $177,000 in December, 1988, and $185,000 in January, 1989, according the the California Assn. of Realtors.
Last year, 850,000 California homes were sold, 250,000 of them new.
“If you look at whether housing is overpriced in California, all you have to see is that nearly 1 million people bought homes at these prices,” Salkin said. “So are housing payments exaggerated here? It’s tough . . . to say yes.”
