Apartment Shortage May Hurt County Economy

Economies abhor an imbalance.

Too much demand and not enough supply in one economic sector tends to spill over and turn seemingly unrelated sectors on their heads, which is why Dawn Dyer worries about Ventura County’s soaring residential rental rates.

“I don’t think this is something that anyone in the county can just pass over and say it will take care of itself, because it won’t,” said Dyer, president of a Thousand Oaks real estate brokerage. “It’s a big problem right now, and what worries me is that if something isn’t done there could be an economic backlash.”

Backlash?

Yes.

Ventura County’s apartment vacancy rate is at its lowest level in history.

A rate of 3% to 4% is considered healthy, but in January it hovered at a dangerously low 1.5%, virtually shutting out anyone in the market for an apartment.

Consequently, the average rent has been increasing. It was up 6% last year, to $879 a month, ranking the county 114th out of 125 U.S. metropolitan areas for affordability, according to a report by industry analysts at ReliaStar.

Dyer and others are concerned that if the trend continues, it may prompt businesses to reconsider Ventura County as their base of operations.

In a report included in UC Santa Barbara’s 1999 Economic Forecast, Dyer warns that companies looking to expand in the area or relocate here may go elsewhere if their employees cannot find convenient housing or if they must increase salaries to match the higher cost of living.

“The bottom line is what really matters to businesses, and if they see that starting to erode, they’re going to react,” she said. “What that reaction would be, I can’t say for sure, but it’s possible they’d move.”

If such an exodus began, she added, the area economy could stall.

In many respects, housing, affordability and lifestyle were factors that helped put Ventura County in the kind of bind it is in today.

With its proximity to Los Angeles, pastoral lands, low crime, excellent schools and company-friendly governments, the area has earned marquee status as a place to live and do business.

During the past decade, the county has seen a surge in economic activity with the growth of its high-technology industry and further development of the retail trade, service and manufacturing sectors.

More jobs have been created in Ventura County during the past two years than in the previous 10.

Last year alone, payrolls increased by more than 2.5%, with the creation of about 8,400 jobs and an additional $300 million in wages.

“The last couple of years have been great for Ventura County, but that hasn’t happened without a few problems--the biggest of which is housing,” said Jack Kyser, chief economist for the Los Angeles Economic Development Corp. “There’s a strange dynamic at work here. . . . The economy is great, but there hasn’t been that surge in construction that you usually see, which has led to this kind of imbalance.”

And that imbalance is extreme in Thousand Oaks, where the average rent climbed more than 4% in 1998 to $995.

With a 2.2% vacancy rate, the city now has the most expensive and one of the tightest apartment markets in the county.

The average for a two-bedroom rental in the city now stands at $1,029. Three-bedroom apartments fetch an average of nearly $1,200 a month.

“What’s going on [in Thousand Oaks] is frightening,” Dyer said. “There’s basically nowhere to live, and what is available is so overpriced that it’s almost better to buy a house and assume a mortgage.”

In Oxnard the situation is not much better.

Although its 4% vacancy rate is the highest in the county, the average rent in Oxnard increased by about $30 between 1997 and 1998 to $763 a month for all apartment types.

For Steve Kinney, whose job it is to stoke the city’s economic fires, the situation is beginning to cause some concern.

Though housing expense hasn’t caused a company to leave town yet, Kinney, the president of the Greater Oxnard Economic Development Corp., says it could become a significant hurdle for future business and employment growth.

“In the big picture, high rents and low vacancies are a disincentive for business growth,” Kinney said. “It’s something the cities and county are going to have to take a long look at because it looks like the problem isn’t getting any better.”

The tightest apartment market right now is in the Simi Valley and Moorpark area, where the vacancy rate stands at about 0.75%, with rents reaching as high as $1,240.

In Camarillo, vacancies in January were also almost nonexistent, holding at 0.92%, with rents averaging $927. In Ventura, the rate was slightly higher, 1.52%, but rents averaged about $1,000.

To remedy the problem, Dyer said cities are going to need to encourage and allow the construction of more apartment complexes.

However, that may be more difficult now that voters have approved a number of strict growth-control measures, which analysts said have radically changed the economics of multifamily housing development and exacerbated the problem.

“Ventura County is classic California, and I can certainly understand why people would want to protect that,” Kyser said. “But protecting it is going to come at a price where there’s a limit as to how much the area and the economy can grow.”

Developable land in Ventura County is now at a premium--with most cities already more than 90% built-out--which may drive land prices up to a point that apartment construction just doesn’t make financial sense, Kyser added.

To get a return on their investment, analysts said developers will need to build high-end luxury apartment complexes that would rent for upward of $2,000 a month.

That, they added, would price those who need apartments out of the market.

“The people who need apartments are by and large people who can’t afford a house,” Dyer said. “So that kind of development is not going to solve the problem.”

Businesses in Ventura County generally have been slow to recognize the problem, in part, because many of those that have added employees and are continuing to expand can pay the kinds of salaries to offset housing costs.

Yet there are some for whom housing and cost-of-living increases are factors that dictate how and when they can expand their businesses.

Stacy Roscoe remembers a similar situation six years ago when Procter & Gamble Co. was considering doubling the work force at its Oxnard plant.

At the time, housing was scarce and expensive, which threatened to derail the company’s growth plans. But before long the recession caught up to the city and its housing market dipped, solving the problem.

“You’re always looking to grow your business, so this should be something everyone should keep their eye on,” said Roscoe, Procter & Gamble’s public affairs and business manager. “Our work force is stable right now, so it hasn’t been much of a problem, but it has become a little more static than it was a year ago.”

Penny Bohanon had predicted such apartment scarcity emerging in the wake of stricter growth controls and now worries that the economy--and ultimately the people of Ventura County--are going to suffer.

She said cities will have to rethink their development plans carefully because available land--the cornerstone of business and economic development--has become a commodity in even shorter supply.

“We’ve developed this situation where people are literally standing in line to get an apartment they’re going to have to pay too much for, and that’s unfortunate,” said Bohanon, president of the Ventura County Economic Development Assn. “And this is something I’m not sure we can fix. . . . There already isn’t enough space in cities to meet the demand.”

Currently, only a few apartment projects are either being built or pending in Ventura County, according to Dyer.

Simi Valley and Oxnard have projects under construction, and others are planned in Thousand Oaks, Ventura and Camarillo.

But Dyer said the total number of additional units will fall far short of the number needed to alleviate the mounting pressure on the county’s apartment market.

“There are no significant projects in the pipeline, and what’s being planned and under construction isn’t enough,” she said. “At some point this problem is going to seem all too real, and by that time it might be too late.”

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No Room

The average apartment vacancy rate in Ventura County has been steadily declining, while rents have increased to nearly $900 a month.

Vacancy Rates

1.5%

Average monthly rental rate

Source: Dyer Sheehan Group Inc.