Rent Increases Expected to Outpace Home Prices

As housing prices soar, apartment owners also will reap some benefits.

One financial analyst who follows the housing industry recently predicted apartment rents in Southern California will move up faster than housing prices this year.

Craig Silvers, vice president of Los Angeles-based Sutro & Co. Inc., said he expects apartment rents to rise 8% to 12% this year. That’s a hefty increase, especially after the market saw strong gains of 5% to 7% last year, he said. Meanwhile, home prices should rise only 3% to 4%, he predicted.

Even in Orange County, where the typical apartment rents for nearly $1,000 per month, according to the latest surveys, apartment prices still are considered attractive compared with monthly home payments.

The shortage of new housing, relative to population and job growth in the area, also should keep rental units occupied, he said. In Southern California, for every four jobs created, there is only one new home built, down considerably from one unit for every two jobs that existed from the late 1980s to the mid-1990s.

Pamela Wooldridge, president of a Rancho Santa Margarita research firm, also predicts that rents will continue to climb this year. While updating data for an upcoming annual report on Orange County’s apartment market, she found rents have been moving up steadily and occupancy levels were consistently above 95%.

Moreover, she said, in the pit of the recession, landlords offering incentives such as one-month free rent ballooned to 80%. But now, only 13% of Orange County property owners are offering such deals to entice renters.

“Thirteen percent is minuscule--the smallest amount we’ve tracked since 1988,” said Wooldridge, of Research Network Limited. “It’s an indication of the market’s health.”