Can L.A. Apartment Construction Catch Up With Demand?

The Los Angeles apartment supply is trailing significantly behind demand. Experts continue to estimate that the market needs approximately 100,000 units in the next five years to reach equilibrium. The strong demand justifies new construction activity—and a substantial new construction pipeline—but demand is only growing and keeping up with growing demand has been challenging in Los Angeles.

“Development activity is being driven by strong demand for rental units,” Peter Belisle, southwest market director at JLL, tells GlobeSt.com. “The Los Angeles multifamily market isn’t overbuilt, and vacancy has remained persistently low despite developers stepping in to meet demand. Additional residential construction is justified throughout the L.A. basin as the market is not oversupplied and demand fundamentals are expected to remain strong.”

High home prices and a trend toward urbanization has fueled the strong demand for housing in Los Angeles. The city has one of the lowest homeownership rates in the country. “Rising home prices coupled with a demographic shift towards renting or delaying home-ownership longer are two of major factors driving the multifamily market,” says Belisle. “Los Angeles homeownership ranks at the bottom nationally with only 49% of people owning a home. This is well below the national average of 64.5%. Median home prices have increased 40% over the last five years, pricing out many home buyers and creating more renters.”

Belisle adds that there has also been a general trend toward urban living, which has also bolstered demand growth in Los Angeles. “The rising popularity of urban living has also spurred the need for additional apartments in urbanized areas like Downtown and Hollywood, where 37% and 31% of the population are millennials,” he explains.

Construction activity has been the strongest in Downtown Los Angeles and North Los Angeles, both markets where there is available land for new construction. Looking ahead, construction will continue to be robust with building focused near transit. “Based on current population growth forecast, we expect over 100,000 additional units will be needed over the next five years. Developments clustered near transit nodes are also in high demand,” says Belisle. “Ballot measure JJJ, approved in late 2016, incentivizes new affordable housing that are highly accessible to public transit. Currently, developers have filed applications with the city for over 5,500 units located near transit.”