Apartment construction surges across the Southland amid rising rents

Building permits were issued for nearly 17,000 units in apartment and condo buildings in Los Angeles and Orange counties last year, the most since 2006, according to the Census Bureau. Above, an apartment complex under construction in downtown L.A. in January.
(Genaro Molina / Los Angeles Times)

Apartment construction is surging, in Southern California and nationwide.

New apartments and condominiums drove building permits up 8% in April from the prior month, to their fastest pace in nearly six years, the Commerce Department reported Friday.

Housing starts — which measure the launch of construction — climbed 13.2%. Most of the growth came in multifamily building, which is now back at pre-recession levels and up 15% through the first four months of the year compared with the same period last year, even as permits for single-family homes remain sluggish.

All this building comes as rents continue to rise — in Southern California and elsewhere — and reflects growing demand for apartments and optimism from big builders that demand will keep pushing those rents higher even as more supply comes onto the market.


“It’s a wildly different market than it used to be,” said Steve Wilson, executive vice president for West Coast operations at AvalonBay, a large real estate investment trust that owns 12,000 apartments in Southern California. “I’ve got to believe we can get 4% to 5% rent growth a year over the next 10 years.”

Wilson, like others in the multifamily business, sees multiple factors driving demand.

The economy is improving, which means more twentysomethings who’ve been living with their parents or piling in with roommates can afford their own apartments.

At the same time, the for-sale housing market is still tough — with prices and lending standards high — keeping more thirtysomethings paying rent instead of jumping into homeownership.

And then, he said, there’s a growing cadre of people of all ages who are renters by choice, preferring the flexibility of an apartment and often willing to pay for top-end properties.

So AvalonBay is building. The company has seven projects under construction in the Southland — including the Ava in Little Tokyo, where studio apartments start at $1,995 — and an eighth on the way. Although many multifamily builders moved first into even hotter markets such as San Francisco and Seattle, Wilson said he now sees more potential for growth in the Southland.

“We’re very bullish on Southern California,” he said. “The recovery in Southern California has been a bit muted compared to the rest of the West Coast, but now we’re starting to see some traction.”


Lots of others are too. Building permits were issued for nearly 17,000 units in apartment and condo buildings in Los Angeles and Orange counties last year, the most since 2006, according to the Census Bureau. Through March of this year, permits were up 30% from the same three-month period last year.

Some of those permits went to Aimco, a real estate trust based in Denver that is spending $365 million to redevelop Lincoln Place, a mid-century apartment complex in Venice with 696 units.

Aimco is adding 99 more units and installing higher-end amenities such as a rooftop lounge and a business center. The project, expected to be completed next year, has been filling up fast, said Senior Vice President Patti Shwayder.

“We’ve been getting our [projected] rents even in the middle of a construction site,” she said. “You’ve got a lot of people moving to the area. We’ve been very pleased.”

Theoretically, the new supply should keep rents — which grew on average 2% over the last year in Los Angeles and Orange counties, according to data firm Reis Inc. — in check. But it’s not necessarily working out that way.

In a vast region where more than half of households rent, even the nearly 17,000 units permitted last year aren’t boosting supply in Los Angeles much, experts say. And many of them are higher-end units being built in pricier parts of town, said Eric Sussman, a real estate lecturer at UCLA’s Ziman Center for Real Estate who also heads several firms that own apartment buildings in Los Angeles.

Although he predicts that rent growth at the top end might flatten out, the new buildings won’t translate into more affordable rents for the broad middle of the market.

“The stuff that’s coming on line, it’s all Class A. And if you’re going to build Class A, you’ve got to be in a good market,” he said. “Class B rents are going to keep going up. No one’s building affordable, middle-class apartments unless you’ve got a subsidy or tax credits or something.”

And in the hottest pockets of the region — where much of the apartment building is happening — there’s no sign of cooling, said Kevin Miller, president of listing service Westside Rentals. He works with many smaller apartment buildings and mom-and-pop landlords, and said the new supply of high-end complexes isn’t having much effect on their business.

“The new stuff hasn’t affected them at all,” he said. “Rents are going up. And up and up.”

Much of it, Miller says, is driven by simple economic fundamentals. His office is in Santa Monica, where the Silicon Beach tech industry has brought a flood of young professionals. These are people with good jobs, he said, and they’re willing to pay a little more to be close to work and the beach.

“This is actually based on solid employment foundation,” he said. “That’s what’s so encouraging.”

It’s a big shift from four or five years ago, when the job market was tough and rents were falling, Aimco’s Shwayder said. Her company manages 3,500 apartments in Los Angeles and saw rent revenue grow 5.3% last year. With Lincoln Place filling up and rents on the rise elsewhere, she said she expects that growth will continue.

“It’s a really good time to be in the apartment business.”

Twitter: @bytimlogan