Rents Could Climb 7% as Demand for Apartments Outpaces Supply

With the pace of new apartment construction being dwarfed by the number of potential renters, Orange County rental prices are expected to climb by more than 7% this year, according to a recent report by a Palo Alto company.

Only 2,000 units will be built in the county this year, mostly in Irvine, according to the report by rental market research firm Marcus & Millichap. Those new units will do little to alleviate the housing crunch, as vacancies will remain at record lows of less than 3%.

The study predicts that monthly rents in new complexes of 100 units or more will rise this year by about $72 to a record $1,110 in the county.

With wages increasing at a slower rate, many consumers will be devoting more than 30% of their gross income toward rent, the report said.

Moreover, the demand for rental housing “will allow landlords to continue their rent hikes without constraint,” the report said.

As a result, more renters will be priced out of housing in the county and forced to live in such areas as Riverside and San Bernardino counties, where rents are less.

Developers, who say their building plans are constrained by high land costs, will be putting up mostly luxury units. John Przybyla, sales manager at Marcus & Millichap, said that many developers find units cost $150,000 or more to construct because of high land costs.

To avoid those land costs, builders increasingly are drawn to smaller, older properties, which are renovated. Even in these units, which carry average rents of $800 to $850 a month, Przybyla said, rents are expected to rise this year by more than $50 per month.