When We the Rental Market Hit Equilibrium?

LOS ANGELES—Los Angeles apartment rents are continuing to climb even as new supply comes online. Several new reports show increases in rental rates despite new deliveries, highlighting the severe supply-demand imbalance in the city. While Mayor Garcetti in 2015 called for 100,000 new units to be built, real estate economist Chuck Ehmann says that we will likely never be at a true equilibrium in Los Angeles.

“Landlords are not in the driver's seat in most California markets. Keep in mind that markets move in cycles and rarely achieve a sustainable equilibrium as supply and demand react to market drivers over differing time frames, each trying to catch the other,” Ehmann, real estate economist at Axiometrics, tells GlobeSt.com.”

Although achieving an equilibrium is unlikely, Los Angeles rents are slowly rising and that creates a more stable environment for renters. “Los Angeles' moderate rent growth is more beneficial to renters, especially compared to the severe swings in rents we saw in the Bay Area,” says Ehmann. “Double-digit increases a few years ago have swung to mild negative growth in rents in San Francisco and Oakland and flat growth in San Jose.

Apartment demand is expected to continue to rise in Los Angeles as the population grows and our job market remains healthy. “As with virtually all apartment markets, job gain is the primary driver of apartment demand, and thus, occupancy,” explains Ehmann. “Look at this chart of occupancy and annual effective rent growth charted against annual job gain and the correlation is an obvious comparison.”

LOS ANGELES—Los Angeles apartment rents are continuing to climb even as new supply comes online. Several new reports show increases in rental rates despite new deliveries, highlighting the severe supply-demand imbalance in the city. While Mayor Garcetti in 2015 called for 100,000 new units to be built, real estate economist Chuck Ehmann says that we will likely never be at a true equilibrium in Los Angeles.

“Landlords are not in the driver's seat in most California markets. Keep in mind that markets move in cycles and rarely achieve a sustainable equilibrium as supply and demand react to market drivers over differing time frames, each trying to catch the other,” Ehmann, real estate economist at Axiometrics, tells GlobeSt.com.”

Although achieving an equilibrium is unlikely, Los Angeles rents are slowly rising and that creates a more stable environment for renters. “Los Angeles' moderate rent growth is more beneficial to renters, especially compared to the severe swings in rents we saw in the Bay Area,” says Ehmann. “Double-digit increases a few years ago have swung to mild negative growth in rents in San Francisco and Oakland and flat growth in San Jose.

Apartment demand is expected to continue to rise in Los Angeles as the population grows and our job market remains healthy. “As with virtually all apartment markets, job gain is the primary driver of apartment demand, and thus, occupancy,” explains Ehmann. “Look at this chart of occupancy and annual effective rent growth charted against annual job gain and the correlation is an obvious comparison.”