Residential building in LA is growing but not enough to keep pace with demand, except for downtown where there is a construction boom. Housing demand has far outpaced construction. In California during the thirty years between 1980 and 2010 new housing units were added at about half the rate us average US Metro area. The supply shortage has driven up prices. The homeownership rate is at a multi-decade low. Renters have increased. Today’s renters include all income groups. Prospects are good for apartment property owners. LA ranks in the top 5% of new apartment construction but there is still not enough being built. Over 90% of new units being built are high quality for market rate rents. Southern California is one of the strongest apartment markets in the nation.
Apartment property sales are presently the highest volume of all commercial property types and the only type to showing positive growth. Confidence in apartment investments is high. Apartment prices continue to go higher and it is a very liquid market. Southern California apartment market trends are stronger than national trends and are expected to continue this way for several years. Job growth in LA is healthy. Job growth goes along with rent demand. Apartment vacancies have declined steadily since the 2008 recession. Growth in rents is still increasing, 4.1% increase in 2016, but not as strong as 6.9% in 2015 which was probably the peak growth rate in this cycle. Many renters are usually willing to trade a long commute for lower rent, yet there is strong rental demand is desirable areas such as the Westside. Cap rates are low and should continue like this. There is loads of investment capital coming into LA and this seems unlikely to slow anytime soon. It’s a Golden Age for apartment property ownership.
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