Low Vacancy Rates, Rising Home Prices Push Southland Rents Up

Southern California renters faced higher rent increases in the second quarter, as low vacancy rates and rising home prices gave landlords an opportunity to push up rents at a faster pace, according to a quarterly survey to be released today.

In the six-county region, rents on average rose 5.5% year-over-year in the second quarter, compared with increases of 5.2% in the first quarter and 4.5% in the fourth quarter of 2004, according to RealFacts, a Novato, Calif.-based firm that analyzes the apartment market for investors and developers.

In Los Angeles and Orange counties, the average monthly rent was $1,419, a 6.2% year-over-year increase, the survey said. RealFacts found that rents rose in 27 of the 29 markets it surveys. The Inland Empire continued to show the biggest rent gains. There, the average monthly rent rose 6.9% year-over-year to $1,045.

The pace of rent increases accelerated over the last two years in Southern California, according to the survey. As the supply of rental units has not grown significantly, occupancy rates have hovered at about 95% and rising home prices have made owning a house a less viable option for many. At the same time, the local economy is creating jobs and attracting new residents.

The Southland, from an apartment owner’s perspective, is a “protected market,” said Gerald Cox of RealFacts. “There’s decent occupancy and rent levels are going up,” he said. The typical renter “cannot afford starter homes, even condos” and thus will need to live in an apartment instead.

A number of cities, including Los Angeles and Santa Monica, enforce rent control, capping the rate at which landlords of older buildings can raise rents each year. Still, those cities saw rents rise 10% and 12%, respectively, in the period.

Rent growth tends to be higher in markets where home-price appreciation is strong. In Southern California, housing prices rose about 15% on average in the second quarter.

Rising property values have also helped push more and more apartment owners to convert their units into condominiums. During the second quarter, 13,840 rental units were removed from the housing supply in the West to be transformed into for-sale condos.

The Las Vegas and San Diego areas topped the list of regions with the most condo conversions during the period, RealFacts said.

Each quarter, RealFacts surveys rents and occupancies at 11,000 apartment complexes of 100 units or more in the Western U.S.