L.A. Apartment Rents Up .5% at Half Year

Los Angeles apartment rents have continued to slow. According to a new report from Apartment List, Los Angeles apartment rents are up .5% so far this year, far below the national average of 1.6% apartment rent growth. Slowing rental growth has been an ongoing trend in Los Angeles this year after several years of strong rent growth and a significant amount of new apartment development, which has come to market this year.

"The slowed pace of rent growth in L.A. is likely attributable to new inventory coming on the market," Christopher Salviati, housing economist at Apartment List, tells GlobeSt.com. "While the total number of housing units permitted in L.A. County remains below its pre-recession peak, the number of multi-family units surpassed its pre-recession peak in 2015 and has remained at a healthy pace. As these new units complete construction and hit the market, the increase in supply helps to ease pressure on prices. It is important to note, however, that much of this new inventory is coming in the form of large apartment complexes in the downtown area. While this segment of the market has certainly seen rent growth slow, it may be the case that other segments of the market remain tight."

New construction has had a significant impact on apartment rents. The good news is that new starts are slowing. The bad news: new supply will continue to come to market for the next 12 months. "The number of new multifamily units permitted in L.A. County has dipped slightly since 2015, but remains above its pre-recession peak," says Salviati. "With this new supply continuing to hit the market over the next 12 months, we would expect rent growth to maintain a relatively modest pace."

The rent growth is linked to new supply, not an underlying issue in local economic fundamentals. However, slowing rent growth will likely deter apartment investment activity. "If rent growth continues to remain sluggish, it would tend to make new investment and development slightly less attractive," says Salviati. "If this results in a slowdown of new construction, we would eventually expect rent growth to start picking back up."

Despite the new supply deliveries, the Los Angeles housing market remains tight. If a downturn does arrive in the next year, as some predict, the impact is hard to predict. "This is difficult to predict, as the specific timing, nature, and magnitude of the next recession all remain to be seen," says Salviati. "Currently, L.A. ha a strong local economy and a tight housing market. The impacts to the local housing market would depend on the nature of the recession and how hard it hits the L.A. economy."