7.11.2016 | Low Vacancy Rates in LA – Rusty Tweed Team
What are the causes of the Housing Shortage in LA?
Blame for the difficulty of finding an apartment in LA and rising rents is often leveled at the new housing developments. New developments are particularly springing up in Downtown LA, Hollywood and Koreatown. Rents climb as new tenants arrive. However, rent has increased citywide, including in areas with extremely limited new development such as Beverly Hills and Venice. The answer, as in other major cities such as Boston, New York and San Francisco, is in fact the low vacancy rate citywide.
According to the LA Times, “the correlation between prices and vacancies [in 20 of the largest U.S. cities] is four times stronger than the correlation between prices and new development”.
Experts agree that a 5% vacancy rate is the tipping point for the power dynamic between landlord and tenant. Above 5%, landlords need to offer lower rents or incentives to be competitive. Lower than 5%, landlords know that there will be a wealth of other takers. Reports from the USC Lusk Center for Real Estate indicate that multifamily vacancies in LA have been below 5% for the last five years.
Los Angeles is the furthest behind in terms of population growth. In 2015, LA’s vacancy rate averaged 3.1%. The city needs new market-rate housing to combat the problem. According to LA Times journalist Shane Phillips, “it must be complemented with policies that more effectively incentivize creation of sufficient affordable housing and additional resources to support lower-income residents.”
Downtown LA’s Multifamily Developments
Over the past 15 years, the total of new multifamily units in Downtown LA (DTLA) has tripled. An additional 22,000 units are either under construction or in the proposal stages.
The projects under development downtown vary from brand new developments to adaptive reuse buildings. Some of the most hyped new projects include Greenland USA’s $1B Metropolis building, Trammell Crow’s La Plaza Cultura and Trumark Urban’s Ten50 S Grand. ICO Group’s Broadway Lofts is a case study in adaptive reuse following their repositioning of the over 100 year old Bumiller Building.
However, there is still a critical shortage in units and there is certainly space for more players.