Though income grew faster than rent in 2019, workers flee Southern California for markets where new apartment construction is occurring at a faster pace
LOS ANGELES–(BUSINESS WIRE)–The 2019 University of Southern California Casden Economics Forecast predicts that the average Southern California apartment dweller will pay at least $100 more per month by 2021.
While salaries increased slightly more than rents across Southern California in 2019 – indicating a slight uptick in affordability – housing costs and below-average construction of units are forcing workers to seek employment elsewhere.
“Rents are continuing to rise, and at a slower pace. And rents in the past year rose a little bit less than renter incomes,” said Richard Green, director of the USC Lusk Center for Real Estate, which authors the forecast each year. “Still, an ongoing lack of affordability is causing skilled workers to flee the region and seek employment and housing elsewhere.”
The annual forecast predicts that over the next two years, rents will increase over their 2019 levels by $139 in Los Angeles County, $106 in Orange County, $209 in San Diego County, $110 in Ventura County and $100 in the Inland Empire, which includes San Bernardino and Riverside counties.
Meanwhile, vacancy rates remained relatively stagnant as Southern California added new units at a much slower rate than other western U.S. cities. An analysis of building permits found that the region approved fewer than three units for every five per 1000 people added in places like Phoenix and Las Vegas.
The forecast notes that these two cities are the top destinations for workers who decided to leave the state last year. Despite California’s low unemployment rate in 2018, the region lost 20,000 people to outmigration.
“It’s no coincidence that nearby cities with thriving economies and more robust pipelines of new units coming to market are draining skilled workers that would otherwise be part of the California economy,” Green noted. “Housing is more affordable in places where land is cheaper and developers face fewer regulatory and legal barriers that, in California, delay construction and drive up legal and consulting fees.”
The annual forecast provided the following outlook for each region:
LOS ANGELES COUNTY
In Los Angeles County, the only market with more renters than homeowners, apartment dwellers pay the highest rent despite having lower income than San Diego, Ventura and Orange Counties. The county’s reliance on the information technology sector, which accelerated the local post-recession recovery, is showing signs of becoming an economic liability as sector employment has slowed to about half the statewide average. Despite the region’s highest pace of multifamily construction, vacancy rates will remain virtually unchanged and average rent will climb.
2019 Levels: $2,230 average rent; 3.5 percent vacancy rate
2021 Forecast: $2,369 average rent; 3.6 percent vacancy rate
Orange County, which still has the region’s highest household income and homeownership rate, has seen steady job growth so far in 2019. With a significant reduction in new multifamily construction compared to earlier in the decade, the region’s second most expensive multifamily market will experience a combination of rent increases and fewer vacancies in the next few years.
2019 Levels: $2,090 average rent; 3.8 percent vacancy rate
2021 Forecast: $2,199 average rent; 3.3 percent vacancy rate
SAN DIEGO COUNTY
With so much focus on the housing crisis in Los Angeles, it’s often overlooked that San Diego County’s economic prosperity is coupled with a chronic housing shortage. The forecast predicts a continuation of limited construction as jobs and population continue to grow. As a result, rents will increase while vacancies remain virtually unchanged.
2019 Levels: $1,980 average rent; 3.5 percent vacancy rate
2021 Forecast: $2,100 average rent; 3.4 percent vacancy rate
Historically the region’s slowest-growing region, Ventura County produced one of the biggest surprises of this year’s forecast with a 50-percent increase in multifamily construction permits. With much of its housing stock tied up as second homes or units reserved for seasonal use, rents will continue to increase as vacancy rates decline.
2019 Levels: $1,970 average rent; 3.4 percent vacancy rate
2021 Forecast: $2,080 average rent; 2.7 percent vacancy rate
Despite having Southern California’s fastest growing job market, the Inland Empire’s economic expansion has been somewhat constrained by the sluggish labor supply that exists throughout the state. Regardless, the region’s most affordable multifamily market also experienced the fastest increase in housing costs. Rents are expected to grow while vacancies decrease over the next two years.
2019 Levels: $1,500 average rent; 3.5 percent vacancy rate
2021 Forecast: $1,600 average rent; 3.1 percent vacancy rate
The 60-page report was produced by the USC Lusk Center for Real Estate and prepared by Green and a Beacon Economics research team using data provided by RP Axiometrics, LLC, the California Dept. of Finance and the U.S. Census Bureau.
The complete 2019 USC Casden Real Estate Economics Forecast, which contains additional analysis and projections for the dozens of submarkets that comprise the five larger markets in Southern California, was presented to a gathering of hundreds of industry professionals in Los Angeles on Oct. 25, 2019. The full report will be made available to the public on Wednesday, Oct. 30, 2019 at https://lusk.usc.edu/.
About the USC Lusk Center: The University of Southern California Lusk Center for Real Estate seeks to advance real estate knowledge, inform business practice, and address timely issues that affect the real estate industry, the urban economy, and public policy. The Lusk Center produces relevant and timely real estate research, supports educational programs for students and executives, and convenes professional forums that bring together academics, students, business executives, and community leaders. For more information please visit www.usc.edu/lusk.
About Beacon Economics: Beacon Economics is one of California’s leading economic research and consulting firms, specializing in economic and revenue forecasting, economic and fiscal impact analysis, public policy analysis, regional economic analysis, real estate market and industry analysis, and EB-5 Visa analysis. Known for delivering independent and rigorous analysis, the firm provides its clients with economic trend and data analysis that strengthens strategic decision making about investment, revenue, and policy. Clients range from the State of California to Fortune 500 companies to major cities and universities. In 2015, Beacon Economics partnered with the UC Riverside School of Business to establish the Center for Economic Forecasting and Development. Learn more at www.BeaconEcon.com.