L.A.'s Affordability Crisis Limits Growth

It's no secret: we have a severe housing affordability problem in Los Angeles, and many in the real estate market point to under housing supply as the root of the problem. A recent report from Beacon Economics showed slowing job growth in L.A. as a result of a tightening job market, but Robert Kleinhenz, economist and Executive Director of Research at the firm, says that affordability issues in Los Angeles are also playing a major role.

“On of the reasons that we are unable to grow faster is because we have constraints on the availability of high-end skill sets and talent, but we also have to acknowledge that this is an expensive place to live,” Kleinhenz tells GlobeSt.com. “It is hard for lower income households or people earning lower wages to justify living in Los Angeles County because the cost of living is high and it is hard for them to support themselves.”

Kleinhenz is in the camp that attributes our affordability issues to the dearth of supply, and notes that both rental rates and sales prices are escalating to a point where people at lower incomes and even lower moderate incomes are going to find living in L.A. a burden. “One of the problems that we have, and it rears its ugly head every so often, is that we don't have enough housing, and in particular, we don't have enough housing that is affordable,” he says. “There really are a lot of aspects of living here that are quite high. It is not just housing, although that is a major contributing force. We know that affordability is so low here for owners and renters. This is one of the hardest markets to live if you are a renter. A lot of renters spend a substantial portion of their income paying rent. As a result, there is a huge imbalance between rent and what people make.”

In particular, while there are few highly skilled jobs available, there are too many jobs in food and beverage service. In fact, Kleinhenz says that there are more service jobs than there are people to fill them. “It is too expensive for people that could potentially work in those less skilled positions and it is too expensive for them to reside here,” he explains. “We just don't have enough people in the workforce to meet those job demands.”

The one caveat that could help fuel more growth would be participation in the workforce from young people in the 18 to 24 age group. “We have a fairly poor participation of young members of the workforce, those between ages of 18 and 24,” says Kleinhenz. “The share of individuals in that age group in the workforce is quite low by historical standards. If there is any opportunity to see faster job growth, it is if that particular segment of the workforce happens to increase its labor force participation rate.”