Apartment Rents to Rise at Slower Pace
Rents and apartment values will continue to rise for the next five years in Los Angeles County, but they will climb at a slower rate in the coming year because of the economic slowdown, according to a UCLA forecast.
Rents, on average, will rise by “high single-digit or low double-digit increases” during each of the next five years, forecaster Stephen D. Cauley predicted last week at the university’s annual apartment market forecast conference. For the coming year, however, he said rents would rise about 6% in a typical Los Angeles apartment building, contrasted with 9.5% over the last year.
Sales prices for L.A. County apartment buildings will rise by a projected 4.6% in 2002, down from 11.1% this year, said Cauley, associate director of the Richard S. Ziman Center for Real Estate at UCLA’s Anderson School.
Despite this downturn, the performance of the apartment market will be relatively good in light of overall economic conditions, said Cauley, who described his forecast as optimistic.
The outlook for the apartment market reflects trends that have prevailed since the last recession ended in the mid-1990s.
A growing county population has boosted demand for apartments, especially among low- and moderate-income renters, but the supply of new apartments has fallen far short of matching the demand. Developers say they can’t build affordable apartments and make a profit because land is expensive, construction costs are high and most cities discourage new apartment construction.
The gap between supply and demand has driven up rents, making many apartments less affordable for low- and moderate-income workers, but rising rents have made apartment buildings more profitable for their owners.
Demand for apartments will continue to rise, Cauley said. He predicted that the largest population growth in Los Angeles County will be in primarily Latino areas of East Los Angeles and the northeastern San Fernando Valley, where most residents “are never going to be able to afford a single-family home here in Los Angeles.”
Cauley tempered his forecast by saying that the apartment market could suffer in the event of severe economic shocks--such as a stock market plunge or soaring oil prices--or if rents rise so high that people start leaving the region and employers must raise wages so their workers can afford to live here. Such conditions would limit job growth, he said, and slower job growth would reduce the demand for apartments.
Barring such economic setbacks, however, Cauley and other speakers at the conference predicted that demand will continue to outstrip the supply of affordable apartments in Los Angeles County.
