Living Quarters Expected to Be in Short Supply

Population increases and a lack of construction are going to make the already tight apartment market in the northeast San Fernando Valley even tighter, industry experts say.

A recent study by the Real Estate Center at the Anderson School at UCLA projects the northeast Valley and East Los Angeles to be the two fastest-growing parts of Los Angeles County from now until 2005.

While the county population increases by about 1% over the next five years, the head count in the northeast Valley is expected to grow by rates ranging from 6.4% in Sun Valley to 8.2% in Mission Hills, according to economist Stephen D. Cauley, associate director of the UCLA Real Estate Center.

The UCLA projections would produce a population spurt of more than 5,800 in Sylmar, bringing total population there to more than 78,000, and an increase of more than 3,700 in Panorama City, boosting its population to more than 60,000.

All of Los Angeles is already hard-pressed to meet the demand for apartments caused by the increasing population, but that job will be tougher in the northeast Valley because of its faster growth rate and the largely working-class families who can’t afford luxury rents, Cauley said.

In addition, Cauley noted, many of the apartment dwellers are poorly educated immigrants who will lack the earning power to move up to single-family homes.

“What traditionally happened in Los Angeles was that you had a real middle class here who worked at places like the GM plant in Van Nuys at relatively high wages--a blue-collar middle class--who usually started out living in apartments but moved later to single-family dwellings,” Cauley said.

Unlike the Valley of 20 or 30 years ago, Cauley said, today’s world “is just not an economy where people of low education levels, no matter how hard they work, are going to have income growth that allows them to buy a house.”

Families in the northeast Valley need an annual income of more than $63,500 to afford a median-priced home of $160,000 with a monthly mortgage of $1,482, according to a report early this year by the Los Angeles Housing Crisis Task Force.

“You can’t build housing inexpensively, as you once could” in the Valley, Cauley said, pointing out that most apartment construction in the Los Angeles Basin is luxury buildings because of the high cost of land, construction costs and development fees.

The apartment vacancy rate is 3% overall in the Valley, according to a recent report from the Valley Industry and Commerce Assn., but local real estate experts say the rate is 2% or lower in parts of the northeast Valley.

Another problem, according to Cauley, is that most of the apartments in the northeast Valley, as in most parts of Southern California, are one-bedroom units.

“The immigrants are people with families, so the existing stock is not well-suited to where the demand is going to be,” Cauley said.

The lack of housing also will result in steadily rising rents, which could force even more people into already overcrowded areas.

But, Cauley said, if overcrowding gets too bad, people will simply go elsewhere to live, either out of the Valley or out of state.

Although experts say it’s unlikely that enough housing will be built to meet all of the demand produced by projected growth, a few plans have been proposed.

The Los Angeles Community Redevelopment Agency proposed last year that much of the area become the largest redevelopment project in Los Angeles, a 6,835-acre development where $490 million would be spent on revitalization over the next 40 years.

The proposal calls for up to 1,600 quality, affordable housing units, but the Redevelopment Agency’s proposal is on hold after the community disagreed over the plan and Los Angeles City Councilman Alex Padilla deferred action on the proposal for two years.

Valley Industry and Commerce Assn. also has some ideas for making affordable housing easier to build, said Scott Schmidt, its government liaison director.

“We believe we need governmental policies that allow for the market to increase supply on its own. Then we’ll see prices come down and housing become more affordable,” Schmidt said.

Schmidt explained that VICA this year is concentrating on possible reforms to the California Environmental Quality Act that would make it easier for developers to obtain approval for high-density housing developments.

He said, “The way it works now, it’s easier to build suburban sprawl than it is to build infill housing,” because of Environmental Quality Act provisions that require traffic studies for any proposed new housing.

“Infill” is real estate terminology for the few undeveloped parcels of land sometimes found in otherwise fully developed areas--or for renovation of existing buildings in highly developed areas.

Suburban tracts tend to gain approval of their traffic studies, but infill projects have trouble because they are generally adding traffic to already busy areas, Schmidt said.

VICA also supported state legislation last year--and hopes to have it reintroduced this year--to establish “a set of best practices” for local jurisdictions to aid the development of affordable housing, Schmidt said.

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Like VICA, the Los Angeles-based Southern California Assn. of Non-Profit Housing believes that increasing the supply of affordable housing will require the combined efforts of different levels of government and private enterprise, said Jan Breidenbach, the association’s executive director.

Breidenbach’s group is spearheading a campaign to establish an ongoing housing trust fund to be run by the city of L.A. but funded by all levels of government, with the goal of raising $100 million a year toward providing affordable housing.

“There is some land available [in the northeast Valley], although not much, and some [potential projects] would involve razing existing properties,” if money were to become available from the housing trust fund, Breidenbach said.

“If the private market could develop affordable housing, it would,” Breidenbach continued. “But when you’re looking at housing for very low income people, a fair amount of whom live in that part of the Valley, you probably can’t build affordable housing unless it includes some level of subsidy.”

Breidenbach said the coalition of housing groups pushing for the housing trust fund held its kickoff meeting last month and expects to begin a big push for funding in the spring.

Providing affordable housing “is going to be hard, but if we do nothing, we’ll be worse off than we are now,” she said.

The outlook for the Valley presents a mixed bag for would-be apartment investors, according to Steve Heimler, president of Sherman Oaks-based Stratus Real Estate Inc., a property-management firm specializing in apartments.

Besides the growth factors cited by Cauley, Heimler believes the northeast Valley will continue to attract new residents because of its relatively easy access to jobs in downtown Los Angeles and the San Gabriel Valley.

Heimler said the growth will drive up rents, and those rising rents will represent an investment opportunity for investors.

“Yes, there are some blighted areas, but I think you’re going to see some people investing in their holdings to protect their cash flows in future years,” Heimler said.

He explained that he expects owners to refurbish buildings to capture higher rents, while new investors will look for buildings to rehabilitate.

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The strategy, Heimler said, is to find a building that needs renovations but is located in a good neighborhood.

“If you can take the worst asset in an otherwise good neighborhood and turn it into the nicest asset in that neighborhood, you can attract the best residents and you can raise rents,” Heimler said.

“But if there are no good properties in the neighborhood, then you’re not going to be able to attract good residents.”