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News for Los Angeles: New Apartments Coming in 2016, But Rents Expected to Rise

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Los Angeles has long been one of the costliest cities in California. Its reputation is such that the real estate media writes about an “affordability crisis” that is brewing in the Golden State. Realty reports show that the California home premium – the difference between California median house prices and U.S. house price medians – doubled in the last four years, from $126,000 in 2011 to $255,000 right now. And prices continue to climb.

The City is also notorious for its growing chasm between rich and poor. Rich manage to snag the homes. Poor crouch on the street. Less poor are regularly evicted from their apartments due to being unable to pay the rent. Buildings are erected – but for commercial use only.

Finally, after pens broken, keyboards clicked, microphones pressed on and off and lots of invitations to attend meetings dedicated to redressing the problem, the City of Los Angeles has come to some sort of solution. It will erect more apartments.

That’s the news for 2016.

Background

Housing prices are steeper than the famous skyscrapers of downtown Los Angeles. Rental prices are no better.

The Joint Center for Housing Studies (JCHS) of Harvard University recently showed that in prime areas such as San Francisco and Los Angeles almost 60 percent of renters consumed too much of their income for a roof over their heads. About 58.5 percent of the renters from Los Angeles/Orange County (LA/OC) metro areas use more than 30 percent of their income for rent and losing out on other necessities such as food and healthcare. The JLL calls this “burdened”. As much as 32.8 percent of renters, they said, are “severely burdened” which means that they consume over 50 percent of their income for rent’s payment. Los Angeles, JLL reported, had become the 22nd least affordable city in the country. It has become the place with one of the largest levels of homelessness. Too many renters are evicted due to their failing to pay their rent.

Head-splitting rents

Most people prefer to rent apartments rather than buy. Buying a home in LA is beyond the purse strings of most. The problem is that the level of rent almost approaches that of buying a house. In Los Angeles alone, rents jumped 12 percent in 2015, according to the apartment search site Zumper. Vacancy rates hovered around 3 percent. Researchers at USC predicted that rents will reach more than 8 percent of what they were in 2013 by mid-2016.

Stories are agonizing.

A new Harvard report found that 59 percent of people in metropolitan LA are spending too much of their paycheck on rent – 30 percent or more. The Business and Economy section in the LA radio channel, scpr.org, interviewed one Heather M. O’Brien, an artist and founding member of the Los Angeles Tenants Union, who estimated that she devotes about half of her income to rent. Still, she has not seen the rent hikes other members have because she lives in a rent-regulated apartment. The lucky ones are forced to move or share rooms. The unlucky ones -and there’s daily more of them – drop to the street. Even so-called “Affordable housing” units are still out of reach for many residents.

True, Los Angeles increased its building momentum and mass at the start of 2013. Also true that during 2015 alone, builders brought 5,700 rentals to market, concentrated downtown and in the San Fernando Valley, according to a report by the real estate firm Marcus & Millichap. But how many of these buildings are affordable? Few, if any, according to the Harvard report.

Construction has quadrupled its pace. At the same time, homes have sped out of reach for the regular person (namely lower to middle class individuals). Minorities are especially pressed. In the last few years, many a working- to lower middle-class family has relocated to the closest downtown LA suburbs but prices have escalated there too.

Experts trace climbing prices to a variety of factors.

These include lack of space. Los Angeles is crammed. Skyscrapers step into and make up for housing room. The city sweats to cramp as many people as possible into minimal space. The results remind some of sardines. The basic law of Economics sums up the situation: Lack of space leads to higher prices.

Then there’s the phenomenon of foreign all-cash buyers who flock to this Golden City and buy residential and commercial spots. Just a few days ago (late December 2015), British hotel firm Huxton staked out prime property in the Los Angeles downtown area. So houses are built but they are constructed on scales that appeal to the wealthy. And the less-wealthy working class or middle-class families remain without.

Opponents of the system have spent large amounts of time and money writing about the problem, fielding meetings, even trying to get the government involved. Activists point to the growing chasm between rich and poor and argue that everyone – regardless of fortune – needs a place to call their home.

The activists may have won!

News of new apartments for 2016

Thousands of new apartments are expected to come online in the tight Los Angeles rental market next year. News goes that the city has approved $7 billion in construction in the past year. This is the largest building activity Los Angeles has seen in about three decades.

That’s the good news.

The bad?

Rents are expected to rise.

There’s one small consolation for renters in LA: Compared to other cities, it doesn’t have the highest rents. That would be San Francisco, New York, Boston, Oakland. Los Angeles is down the list at number 8, according to Zumper.

But if you live in LA and are looking for affordable housing that’s minimal consolation.

Meanwhile, the City’s union is hoping to control rents in Los Angeles by advocating that the city’s rent-stabilization law apply to more units than those built before 1978. That may be one solution.

Another may be hard money lenders. These give you loans by focusing on collateral rather than credit. Some borrowers who are shunned by banks turn to them. Interest is high, but terms are flexible and aggressive competition sometimes lowers costs. For more details, see other articles I have written on hard money loans.

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