Southern California apartment shoppers are still struggling to find an affordable place to rent, with few units available and rent hikes in the double digits across the region, new apartment figures show.
During the first quarter of 2022, vacancy rates in the region lingered near two-decade lows, giving landlords an opportunity to boost their asking rents.
Orange County’s average rent for a vacant unit jumped 18.2% from the year before, hitting a record-high average of $2,476 per month, a Southern California News Group composite of three leading apartment indexes shows. That’s up $381 a month from the first three months of 2021 – and it’s $988 a month higher than in 2010.
Inland Empire rents were rising almost as fast, climbing 17.4% year over year from early 2021 to a record-high average of $1,941. After seeing rent drops during the pandemic, Los Angeles County landlords were asking 12.8% more for a vacant unit in the first quarter, with a record-high average of $2,332.
The reason is more tenants are moving out on their own. Meanwhile, vacancy rates averaged 2.4% in Orange County and the Inland Empire and 3.1% in L.A. County, the SCNG composite shows.
“We’ve never seen occupancy this high,” said Chris Porter, chief demographer for Irvine-based John Burns Real Estate Consulting. “It’s young adults moving out of their parent’s home or moving out of a roommate situation. They’re living less densely than they have in the past. That’s how I’m explaining these extremely low vacancy rates.”
Porter noted that rising employment, increased wages and government stimulus checks put money in people’s pockets, giving them an incentive to move out. While household incomes have been rising, “I do think we’re reaching the point where affordability is certainly getting stretched,” he said.
The composite figures are averages for first-quarter numbers from CoStar, Moody’s Analytics-Reis and RealPage. Since their landlord surveys tend to focus on larger, professionally managed apartment complexes, their averages tend to be higher than smaller buildings operated by mom-and-pop landlords.
Southern California isn’t alone in seeing such rent hikes amid a national housing shortage, a recent report by Yardi Matrix said. But the region’s pace of rent hikes is a tad faster than the national average of 14.3%, according to Yardi.
Yardi’s data showed Orange County’s average rent was up 19.7% in April, the sixth-highest percentage gain among the nation’s top 30 metro areas. The Inland Empire’s rent hikes ranked 13th in April at 16.8%, and L.A. County’s ranked 19th at 12.7%.
“Explosive rent growth over the past year was driven not just by pent-up demand and growing household formations, but by a large undersupply of new units,” Yardi’s April multifamily housing report said.
“Land is constrained, and the high cost of land and construction labor and supplies makes new projects difficult to pencil out,” the report added. “ … Meanwhile, the demand for housing is evolving. High-income and older households increasingly rent more compared to previous decades. Homebuyers are being squeezed out by rising prices, competition from investors for rentals and people buying second homes.”
‘Increase like no other’
Apartment tracker surveys also tend to be higher than the overall market because they’re based on rents for newly available units and don’t include rent hikes for existing tenants who renew their leases. Porter said Southern California rent hikes for new leases last quarter were two or three times greater than lease renewals.
However, some existing tenants complained they’re also seeing hefty rent hikes when renewing their leases.
One tenant at the luxury high-rise Astoria Central Park West Apartments in Irvine complained he’s been hit with a 9.2% increase, boosting his rent to $4,425 a month should he renew.
“This is a rent increase like no other,” the tenant said. “Normally, I’d see a 2.5% to 3% increase, which is acceptable.”
A new state law capping rent hikes at 5% plus inflation doesn’t apply to buildings like the Astoria apartments that were built within the past 15 years. The tenant said the increases shocked him because the company’s website shows 20 to 30 vacant units.
A Huntington Beach tenant complained recently his lease in a four-year-old building will jump $1,100 to over $3,500 a month should he decide to renew.
“We are now forced to relocate out of the area to find affordable housing, causing us to leave our jobs,” he said in an email.
Smaller hikes ahead
The long-term outlook is for rent hikes to ease over the next few years, but rent drops aren’t expected, Porter said.
Yardi’s latest report forecasts Orange County rent hikes will moderate to 6.2% by next April, with hikes of 9.1% in the Inland Empire and 7% in L.A. County.
During the pandemic, more people moved out of denser, urban areas of L.A. County to the Inland Empire, where they could rent larger homes for less while working remotely. Rents decreased year over year in L.A. County from the spring of 2020 through the winter of 2021.
But they started rising last summer as the pandemic eased and more employees returned to their worksites. Rents were up 6.7% last summer, 10.2% last fall and 12.9% this past winter.
Meanwhile, rents are rising even faster in Orange County and the Inland Empire, with the biggest gains over the past year than in the previous 20 years, according to CoStar figures. Demographics may provide a clue why rents are rising faster in the suburban counties than in L.A., with millennial tenants aging into their 30s and 40s, Porter said.
“Now as they get into their 30s, they tend to go more suburban,” he said. “So I think the pandemic really just accelerated that trend that was already occurring.”
Source: Orange County Register