Housing Prices Up 40% and Growing

Single-family housing prices have increased 42% in the last decade to a median home price of $674,600 in Los Angeles, according to recent research from JLL. The increase in home costs—which is even more dramatic in some submarkets—has left many millennials unable to purchase a home and pushed the homeownership rate in Los Angeles down to 51.9%. As a result, there is increased demand for multifamily housing options, pushing vacancy rates for apartments down to a historic low of 4.5%. We sat down with Dana Brody, SVP of capital markets at JLL, to talk about the rapid rise in single-family housing costs and how the for-sale market is impacting multifamily rentals.

GlobeSt.com: Housing prices have increased 40% in the last decade. What is driving the rapid increase in prices?

Dana Brody: I would argue that it is even more than 40%. In some areas, prices have increased 40% in the last four years and 100% in 10 years. There is a lack of single-family housing, and the development hasn’t been keeping up with supply. There is very little infill construction in the city. Today, people prefer to be in urban areas, so there is a lot of demand for these neighborhoods that are close to Downtown Los Angeles and close to Miracle Mile. There is less demand for areas out in the valley. So, everyone is focusing on the same areas in terms of purchasing.

GlobeSt.com: Has the cost of for-sale housing fueled multifamily and rental activity?

Brody: Absolutely. Every year, buying a home has become more and more unaffordable for people. For millennials today, buying a house is so far out of the realm of possibilities that it isn’t even on their to-do list any more. That is a huge boost for multifamily and apartments. It forces people to make a choice between buying a house and living a certain lifestyle. The ability to buy and save for a downtown payment is not even a possibility for a lot of people, and the market continues to up the ante.

GlobeSt.com: Do you think that the rise on single-family housing costs will this put pressure on the construction of dense for-sale housing options, like condos?

Brody: I definitely think so. We have seen a lot of success with small lot subdivisions. It is all driven by the area and the land costs, and for the projects in prime areas, lot of those end up being more than $1 million. There is a huge need for more accessible housing. Developers are building projects where the market rate is the highest rent in the neighborhood and then they have a super affordable component. However, most people are looking for accessible housing, and that means that you have a job and you do well, but you can’t afford a $4,000 apartment. There is a huge need for more accessible for-sale housing and rents. I don’t know how to achieve that, and developers are really caught in the middle because the market is also driving up land costs. In order for them to have projects pencil, they need to achieve these high rents. It is all part of the way the market works, but we are in a situation where it is not feasible for developers to set lower rents. The unaffordability gap is going to continue to push the need and desire for multifamily housing, but the problem is that so much of the product coming to market right now is very high end.

GlobeSt.com: The report shows that there are 33,000 units in the construction pipeline, which is incredible. However, housing is still undersupplied. Do you expect the development pipeline to continue to grow?

Brody: I think so. I know of a lot of projects that are coming, and a lot of them are really exciting because the are in infill areas that may have been overlooked in the past. Developers are seeing the demand for different locations. Developers are starting to see that building in a B or B- location and get a discount on the land, the project will pencil better and they don’t have to charge high rents.

GlobeSt.com: What will bring down or stabilize the housing costs?

Brody: The change will come when we reach a point of saturation in the rental housing market and for-sale market. If you really see a drop-off in high-end leases, it will force a change. If developers keep creating housing at that price point and it is absorbed, then there is still a demand. The city might be able to step in an subsidize costs or create a partnership. Right now developers are shouldering all of the costs, and I wish there was a way for the city and developers to have a partnership. If the goal is really to have more accessible housing, then there has to be a way.