SoCal Apartment Construction Deliveries Down for the Year

Southern California new apartment construction is slowing. This year, the market will add 14,160 new units, a 16% decrease over new apartment deliveries in 2018, according to a report from Yardi’s Rent Café. Los Angeles and San Diego are the most active markets for new construction, contributing more than 6,500 units in total this year, but these markets are both seeing substantial decreases in deliveries compared to last year, with Los Angeles completions down 23% and San Diego down 29%.

“Both Los Angeles and San Diego are markets that keep witnessing a strong economic growth, which is encouraging more and more people to move there while at the same time putting some pressure on rental prices,” Florentina Sarac, a research analyst at Yardi’s Rent Café, tells GlobeSt.com. “As long as there’s demand, developers will be interested in bringing more units on the market.”

The slow down in new construction activity will likely fuel rent growth by keeping supply in check. “Compared to last year, Southern California is following the national trend of lower units delivered; however, despite increasing multifamily demand for both the renter-by-choice and renter-by-necessity segments, supply does not seem to keep up,” says Sarac. “Prompted by steady household creation and high-paying jobs in the area, residents are more interested in the multifamily sector of the market as single-family homes continue to be unaffordable for most earners.”

In fact, due to high rents, most apartment units currently under construction in the Greater Los Angeles area, are targeting the renter-by-choice category. “According to Yardi Matrix, Los Angeles metro had about 26,500 new units under construction as of June, with most of them being aimed at the renter-by-choice segment,” says Sarac. “Therefore, as long as supply doesn’t fully meet demand for both renters-by-choice and renters-by-necessity, we will continue to see soaring rents in SoCal.”

While new construction completions are down for the year, demand has not waned. The new units are expected to be quickly absorbed by the market. “Despite the slowing rent growth, the apartments projected to be delivered in 2019 in both Los Angeles and San Diego metro are expected to be quickly absorbed, due to strong demand,” says Sarac. “The preferred housing option is renting in both metros as mortgage rates rise faster than wages, making it unaffordable for residents to buy a home.”

The slow down in new construction will also keep both workforce housing—which has seen increasing demand—and high-end housing in demand. “Moreover, we saw that demand has been strong across both renter-by-choice and renter-by-necessity segments in Southern California,” says Sarac. “Nonetheless, with an influx of high-paying jobs and, subsequently, of high-earning renters, the multifamily sector will witness an increased demand not only for workforce housing but also for high-end rentals.”