OC Apartment Development Activity Will Fall This Year

Orange County apartment development activity is slowing. This year, there will be a significant decrease in apartment deliveries compared to last year with only 3,269 units delivered, according to research from JLL. That is a 27% year-over-year reduction. While demand continues to increase for housing, land prices, NIMBYism and regulation have all contributed to a reduction in apartment constructions. This will put more pressure on growing affordability problems in the market.

“We are expecting a big drop in the number of completions this year relatively to last year. It is going to be 3,269 units, which is 27% fewer than were delivered last year,” Bob Patterson of JLL’s capital markets, tells GlobeSt.com. “Appropriately zoned land costs have been going up, and that is going to start affecting land values, anti-development sentiment is rising. Huntington Beach has put a moratorium on development in the city, and we have seen those kinds of development sentiment elsewhere. It is really hard to get a development from concept to actually out of the ground in three to five years.”

Rising construction costs have also contributed to the slowdown in development. Last year, costs increase 10% to 15%, and they are likely to go up again. “We saw in 2019 that construction costs also muted new multifamily development,” Darcy Miramontes of JLL’s capital markets tells GlobeSt.com. “Some of the materials costs may be going down, but I don’t know if that has been realized or true. Certainly, labor has been one of the biggest expenses, and we haven’t seen that come down.”

NIMBYism and community sentiment, however, is the primary cause of discouraging new development. At the same time, however, there is also an affordability crisis, and halting development will contribute to increased affordability problems. “No one wants multifamily development in their neighborhood, but at the same time everyone wants more affordable housing. You can’t have both of those wishes at the same time,” Miramontes says. “There are a lot of other factors that go into it, like the pricing of land and construction costs, but I think there needs to be a meeting of the minds. Developers, homeowners, renters need to come to the table and agree to work together on projects that can be added to neighborhoods.”

In response to the community anti-development sentiment, the City of Huntington Beach put a moratorium on new development; however, is a state plagued by rising housing costs, the move caught the attention of the governor’s office. “With Gavin Newsom as governor, who in general is very pro-development and wants to see affordable housing get developed, it could change the dynamic,” Patterson says. “We’ll have to see how it plays out. I am hopeful that it will play out well with him being able to get cities to build more units and help mitigate the rent growth that we have been seeing.”

There are markets in Orange County, however, where development remains active. East Anaheim, Santa Ana and Orange have been developer-friendly markets. “Santa Ana and Orange is seeing a lot of new construction, and those are two places that are going to be really popular over the next few years,” says Miramontes. “Those are markets that are also relatively developer friendly.”