Los Angeles County Multifamily Rents Slip, Construction Pipeline Empties
LA County’s apartment market saw a slight dip in rents and a slip in vacancy rate in the third quarter of 2024, but experts say that the market is still poised to see rent growth in the coming years due to a pipeline that is dramatically slowing.
NAI Capital Executive Vice President Tim Steuernol chalked the market moves up to higher-cost new apartments that have come on the market since 2020, indicating renters are unwilling or unable to pay for fancier apartments.
“Things are so much more expensive these days, and there’s less discretionary income out there” to spend on housing, Steuernol said.
In the third quarter, the average LA County unit asking rent dipped 0.3% quarter-over-quarter to $2,232 per unit per month, according to a report from NAI Capital. Rents were slightly up over the year from Q3 2023’s $2,218.
The county’s vacancy rate was approximately 4.7% in the third quarter, a slight drop from Q2’s roughly 5%. Overall in Q3, the multifamily vacancy rate ticked down 20 basis points lower than the previous quarter and 10 basis points lower than Q3 2023, according to NAI Capital.
A 5% vacancy rate is often referred to as a “natural” vacancy rate, meaning that anything below that will boost rapid rent growth, according to a 2020 report from the city of Los Angeles’ housing department.
However, as Steuernol noted, there is evidence that in the top of the market — the newer, higher-end units — there is not as much demand. Among the 65,809 units delivered since 2020, 8,510 remain vacant, translating to a 13.1% vacancy rate for these new units.
“A lot of the newer construction apartments have been sitting on the market for longer periods of time,” Steuernol said. “Developers that are hoping to get these high rents haven't been able to get them … they're having to offer up some concessions to get tenants in.”
Any decline in rent, especially one so small, is negligible, Newmark Vice Chair Dean Zander said, because no new supply is really coming online.
NAI Capital noted a 25% decline in new unit completions from Q2 to Q3 and a 29.7% year-over-year decline.
Since 2020, the amount of new units delivered has been 12.4% below prepandemic levels, according to the University of Southern California’s latest Casden Real Estate Economics Forecast.
Meanwhile, the county’s population has been shrinking. LA County’s population decreased by 3.5%, from 10 million in 2020 to 9 million in 2023, according to data from the U.S. Census Bureau.
Outmigration from LA County has slowed but is still notable: 88,500 people – roughly the population of Alhambra – left the region in 2023. Despite that, the yearslong shortfall of housing construction has put the county in a position where it still has a critical need to add more housing that people can afford, even with the number of residents leaving.
For investors, Zander focused on the lack of new supply and the county’s existing undersupply of rental housing as well as its implications for future rents in the famously high-barrier-to-entry market.
“We’re well-positioned for meaningful rent growth over the next couple of years” because of the trickle of new supply in the pipeline for the next couple of years, Zander said.
Near-term rent growth is projected to be moderate – 1% next year and 2% in 2026 – according to the forecast, though it predicted in the long run, a supply shortage on housing would not benefit tenants.
“What looks favorable to renters could mean other regions attract the attention of developers building new housing,” the report’s authors wrote.
Other regions are already light-years ahead of California in terms of bringing new supply online, Moussa Diop, an associate professor of real estate at the USC Sol Price School of Public Policy and the author of the forecast, said in a release. But Diop saw opportunities to reverse trends.
“From pinpointing regulation that encourages development to updating zoning to increase density, there is a lot of low-hanging fruit in Southern California,” Diop said.
