Almost 10 years of sustained rent hikes came to an end in Los Angeles and Orange counties during the spring, thanks in part to the coronavirus pandemic and to new construction.
Following 39 quarters of rent increases, the average asking rent for an L.A. County apartment fell $33 a month in the spring from the winter quarter, dropping to $2,122, figures from the Southern California News Group rent index shows. L.A. County rent also dropped $1 from the spring of 2019.
By comparison, Los Angeles landlords averaged a rent hike of $18 a month every quarter since the spring of 2010.
In Orange County, the average fell $27 from winter to $2,066 a month, the index showed. The average increase from one quarter to the next was $16 a month during the past decade. Rent increased from a year earlier, but by a mere $6.
Still, it was the first time since the spring of 2010 both counties experienced a quarter-to-quarter rent drop.
In Riverside and San Bernardino counties, apartment rents continued rising, but by the smallest margin in six years.
The average for Riverside County was $1,545 a month, up $15 from the winter, figures from CoStar and Yardi Matrix show. For San Bernardino County, rent averaged $1,574 per month, up $19.
The SCNG index is the average of rent data from four leading apartment data firms: Reis, RealPage, CoStar and Yardi Matrix.
The drop in Los Angeles County is typical of what landlords are seeing in big coastal markets like New York and San Francisco, said Greg Willett, chief economist for Dallas-based RealPage.
“Los Angeles and Orange County simply have been hit comparatively hard by job cuts, since the local economies are heavy on the hospitality and service sector industries where layoffs are most widespread,” Willett said. “The Inland Empire economy has fared better because of the bigger role that product distribution plays.”
An uptick in vacancy rates is one reason rent is softening, experts and industry representatives say.
Willett said about 7,600 renter households moved out of their apartments in L.A. and Orange counties this past spring.
“We know individuals are leaving their apartments,” added Fred Sutton, the L.A. regional spokesman for the California Apartment Association, a landlord trade group. “The prices are not going up because they’re not filling the units.”
Some tenants are moving back in with their parents or are doubling up with new room-mates, industry representatives said. Some landlords are renegotiating leases to keep them from leaving.
And some neighborhoods have been hit harder than others, added Daniel Yukelsol, executive director of the Apartment Association of Greater Los Angeles.
“Neighborhoods such as East Hollywood which has a large population dependent upon the entertainment industry have much higher nonpayment rates, as do areas where a majority of hourly workers live,” he said.
In some cases, renters are breaking their leases, with or without their landlords’ consent, to avoid going into debt.
Because more people are working remotely, some renters have become “digital nomads,” moving from city to city, Yukelson said. His own daughter, who works in San Francisco, is heading to New York after spending a month in Boulder, Colo., and is thinking about trying the Midwest after that.
“We are also seeing a migration of renters and homeowners out of the crowded cities to suburbs,” he said. “For example, Santa Barbara County is now seeing increased housing demand as Angelenos are looking for an escape from the worsening environment of the Los Angeles area.”
Others are fleeing to the Inland Empire, added Nicholas Dunlap, a senior vice president at Irvine-based housing provider Avanath Capital Management and a past president of the Apartment Association of Orange County.
“Losses in O.C. and L.A. are gains in the Inland Empire,” Dunlap said.
Rent drops are rare.
Los Angeles/Orange County rents decreased in just 14 of the past 103 years, according to Consumer Price Index rent figures.
A report by Yardi Matrix forecasts, however, projects that 2020 rent in Southern California, 27 other U.S. metro areas and the U.S. as a whole will drop by year’s end.
L.A. and Ventura counties are projected to see a rent drop of 3.1% from last Dec. 31, the report said. Inland Empire rent is forecast to drop 3.4%, and Orange County rent is forecast to decrease by 0.5%, the smallest drop among 30 metro areas.
“The COVID-19 pandemic ended years of healthy multifamily fundamentals,” said a companion report titled COVID-19: A Game Changer for Multifamily. “Demand has weakened, and renters are increasingly looking for more inexpensive (housing).”
Still, rents had been expected to level off before the pandemic hit because of new construction and because the economy had been expected to slow after 10 years of expansion.
Rent growth already started shrinking five years ago.
“We were in late innings, or even extra innings, of the real estate cycle,” Dunlap said.
The region, and Los Angeles County in particular, also has been undergoing a building boom for the past few years.
RealPage figures show nearly 16,000 new apartments were completed in the four-county region this past spring — 10,000 of them in L.A. County alone.
Almost 38,000 more are under construction, more than 31,000 of them in L.A. County.
Since new apartments tend to have higher rents, many high-end complexes started offering concessions, like move-in specials, to lure more tenants.
“Significant new supply coming on stream adds to the challenges that top-tier properties face in Los Angeles,” said RealPage’s Willett. “The pipeline of new product is more manageable in Orange County and not really at all a factor in the market outlook for the Inland Empire.”
Source: Orange County Register