Rent Growth Strongest in Aging Apartment Stock

The rapidly aging housing stock in Los Angeles is contributing to affordability issues, according to research from Apartment List. The supply of housing units less than 10 years old in Los Angeles is currently at an all-time low, and older properties are seeing the biggest increase in rental rates. Since 2000, rents for apartment units built before 1980 have grown 39%. In general, the older the building, the more rapidly rents are rising, according to the report.

“Because of this lack of new construction, demand has remained high for older units, and also increased the incentives for remodeling older units to command higher rents,” Chris Salviati, housing economist at Apartment List, tells GlobeSt.com. “As a result, the median rent for units built prior to 1980 grew by 39% from 2000-2016, significantly faster than the 26% growth in the median for units built in the 1990s. Despite this increased growth, older units are still somewhat more affordable—as of 2016, the median rent for units built prior to 1960 is 14.2% lower than the median for units built in the 1990s.”

In Los Angeles, demand is softest at the top of the market, and that may continue to hamper rent growth, considering much of the new construction activity is in the luxury space. “Many new construction projects have targeted the high end of the market, as the projects only pencil out for developers if they are able to charge high rents,” says Salviati. “There is some indication that demand may be softest in just this segment of the market, which would tend to discourage new construction of this variety. While demand remains strong in the middle- and lower-rent segments, it may not be profitable for developers to build these types of housing.”

The report looks at apartment rent trends since 2000. While Los Angeles has recently seen a growing apartment construction pipeline, construction activity earlier in the cycle and in the last cycle was slow. “This increasing share of older buildings is due to the fact that new construction in L.A. has been fairly subdued for decades—just 17% of rental units in L.A. were built in 1990 or later,” says Salviati.

The recent construction activity hasn’t been enough to offset the aging housing supply, no has the redevelopment and value-add activity. “Despite experiencing a relative construction “boom” recently, the rental stock in the L.A. metro is getting consistently older,” explains Salviati. “In 2000, 57% of rental units in the L.A. metro were more than 30 years old, but by 2016, that figure had increased to a staggering 78%. Of the nation’s 25 largest metros, L.A. has the 5th highest share of units that are over 30 years old.”