L.A. Apartment Rent Growth Settles at 1.5%

Los Angeles rent growth has settled at a range of 1% to 1.6%. The market has seen tremendous rent growth this cycle, but last year, the rent growth slowed down. For the remainder of the year, growth remain at or just above the 1% mark. This means that the growth has returned to a fairly typical pace, according to research from Apartment List.

“After a slowdown in rent growth last spring, year-over-year growth has hovered between 1.0% and 1.6%, and month-over-month growth has not exceeded 0.2% in either direction,” says Christopher Salviati, housing economist at Apartment List, tells GlobeSt.com. “This degree of movement in the rent index is fairly typical, and doesn’t indicate any particular volatility in the market.”

In 2018, rents increased 1.4%. That is include three consecutive months of rent decreases. Even as rent growth has slowed, however, Los Angeles rents are still significantly higher than the national average. According to the Apartment List report, the average rent for a two-bedroom apartment in Los Angeles in $1,750, compared to the national average of $1,170. “The slowdown over the past couple of months can be attributed to seasonality—fewer people are looking to sign leases during the summer months, and we generally observe a corresponding dip in rents at this time of year,” says Salviati. “That seasonal trend is something we observe in all markets, and is not L.A.-specific. That said, rent growth in L.A. has also slowed significantly compared to this time last year. The slowdown began in late-spring last year, and I believe it is attributable to the construction boom in the downtown area of the city. As these projects are completed, the new units provide a bit of ease to the supply-constrained market, leading to a slowdown in rent growth.”

Despite the slowed rent growth overall, there are some submarkets that continue to see substantial increases in rents. “Of the 10 largest cities in the L.A. metro, Santa Clarita is seeing the fastest year-over-year rent growth at 3.4%,” says Salviati. “Of the remaining 9 cities, none have seen year-over-year growth above 1.5%. The exact reason for the quicker pace of rent growth in Santa Clarita is a bit tough to nail down. Given that Santa Clarita is on the edge of the metro, this could indicate increased demand from renters who are expanding their housing searches further out in search of more affordable options.”

Due to the strong economy and sustained growth of the apartment market, slowed rent growth may not have much of an impact on investment capital activity. “L.A. continues to be a market with a strong economy, high demand, and housing supply constraints,” says Salviati. “While rent growth has moderated, rents are still increasing. That said, much of the recent construction has targeted the luxury end of the market, and there is some evidence of softening demand within this segment of the market, which could make additional projects less attractive for investors and developers.”

Looking ahead in 2019, Salviati is hesitant to make a prediction on where rent growth will land. However, he is keeping a close eye on new construction activity. “If the current construction boom continues as expected, it will likely continue to exert downward pressure on rent growth. On the other hand, strong job growth could exert an opposite pressure through increased demand,” he says.