L.A. Second in Nation for Multifamily Construction
Since 2000, Los Angeles has spent $28.4 billion on the construction of new multifamily product as the spending on single-family construction has fallen.
Largely, this jump in spending has been driven by the housing shortage. “Los Angeles is an established metro with a strong economy, which has not built enough new housing to keep pace with demand,” Chris Salviati, housing economist at Apartment List, tells GlobeSt.com. “In general, this need for new housing, particularly dense multifamily housing near the urban core, is driving new construction. Multifamily is making up an increasing share of new residential construction spending in the L.A. metro. In 2000, multifamily accounted for 25% of new residential spending, while in 2016, that figure had doubled to 50%.”
Salviati expects multifamily construction spending to continue to be strong in the market, especially as the dearth of residential supply intensifies. “Although L.A. does have a severe housing shortage, many of the factors that caused that shortage are still in place,” he explains. “Namely, restrictive zoning policies, as well as shortages of labor and materials have made it difficult and expensive to build new housing, which is why LA does not rank higher in terms of per-capita multifamily spending.”
While multifamily construction spending has increased during the time period, by as much as 50%, according to the report, single-family housing construction. New demand for rental living is partially to blame, as is the push for density amid the growing population. However, the cost has also fueled multifamily construction. “Multifamily housing is less expensive to build on a per-unit basis, and is better suited to provide dense housing near the urban core,” says Salviati. “These factors have contributed to multifamily making up an increasing share of new housing in the L.A. metro.”
The multifamily construction boom has helped to fill the housing shortage in L.A., but Salviati says that there are also major economic benefits to this construction boom. “Multifamily construction contributes directly to the local economy by creating construction jobs, as well as injecting money into the local economy when materials are purchased locally,” he says. “We estimate that from 2000-2016, multifamily construction spending in the L.A. metro totaled $28.4 billion. Additionally, a sufficient supply of new housing helps to keep rent growth in check. L.A. is still struggling with a housing shortage, and some parts of the metro are continuing to see rapid rent growth, so it’s difficult to tease out any specific impact of multifamily construction on rents.”