Los Angeles is known for many things… it is also known for its unaffordable housing. Way back in 2010, Mayor Jimmy McMillan uttered the unforgettable cry: “Rent is too damn high!” And this meme became viral. The media took it up and reported the “City of Angels” to be a place where angels, rather than humans, could afford to live if you wanted to survive.
Los Angeles outdoes New York in few things, but house pricing in LA is definitely one. Houses here are even more expensive than in NYC.
2015 was a mixed bag for people living in LA this past year. If you’re a low- to middle-income renter, chances are sorrily slim for your owning a home. And they’ll get slimmer. On the other hand, if you’re looking to selling your own, to rent, or to move out you stand a pretty good chance. This is because the housing inventory is tight and there’s still residents looking to own.
Reasons for why LA’s housing market is so ‘damn tight’.
Realty experts like to proffer reasons to explain the steepness of housing prices. Truth is, some of the reasons are shoddy, but here’s some of the speculations that have been bandied around by reports:
Wages are relatively low – While people in cities like New York and San Francisco pay higher rents and mortgages on average, they also take home higher wages. In LA, you can expect to earn less than other well-paying cities such as Washington or New York. Think of a budget where renting comes to more than 47 percent of your paycheck and you’ll get some idea of how difficult it’s been to buy a home here. Houses are unaffordable – largely because people are making smaller checks than they would elsewhere.
Prices cause stress – Some apartment renters have threatened to go on food stamps. Many cut other amenities just to make rents. As a result, many residents have emigrated to another country or state. Most in LA and its suburbs or other parts of pricey California, for that matter, rent. That makes prices of homes high. Less to buy, the smaller the market gets and the pricier the houses become for those who can afford to buy. Which leads you to reason three:
Housing inventory is crimped – More owners are holding onto their homes for fear of being unable to meet the sky-high price of a new home. A recent article in the Los Angeles Times shows that fewer home buyers have the high credit scores required to receive approval for a mortgage so potential buyers may prefer to sit it out rather than pay more money on getting a loan and risk losing their property because they are unable to meet the repayments. In fact, since the 1970s this has been the longest time yet that people in LA held onto their homes – a median of 10 years.
There is also the risk of buying and having to pay higher property taxes. This, and fewer people owning homes in the first place causes a crimped market. Take the basic law of economic which stipulates that high demand equals small supply equals racketing costs – and you see this occur in current LA. Says USC’s Richard Greene to Take Two: “There are more people who want to live in L.A. than there are houses for people in L.A.”
Airbnb may be a culprit – Some people put Airbnb and other home-sharing agencies in their crosshairs, saying they’ve led to an increase in home prices and evictions. Airbnb disagrees. However, that hasn’t stopped communities like Santa Monica from enacting tough laws on home-sharing sites.
LA still has to agree to such a measure.
In the meantime:
Homelessness in LA has spluttered. The number of people living on the streets jumped 12 percent from 2013 to 2015. To that end, L.A. City lawmakers pledged to spend $100 million in the next year and vowed to declare a homeless state of emergency. However, they have yet to detail how to spend that money and have not declared that state of emergency.
In 2010, L.A. Mayor Eric Garcetti pledged that the City would build 100,000 more homes by 20121. Last September, he noted that Los Angeles is on track. Meanwhile, the city approved $7 billion in new construction in the last year alone, which may be the highest amount since the 1980s. The City has also allegedly promised to build Affordable Housing Plots for the lesser disadvantaged.
Sounds great until you do the hard research and find out that they are building – what? Luxury high-rises, hotels, commercial office building mainly in downtown LA and mainly for foreign billionaires and business people. At least, it gives some people a place to toddle their toes in…
In the meantime…
The rent increased. Fast. Rent was projected to climb more than 8 percent from 2014 to mid-2016. We’ve already whizzed past that. The apartment rental site Zumper found that rents jumped by 11.6 percent in the last year alone.
Makes you wonder whether L.A’s going one step forward or three steps back… Makes you wonder, too, whether the Mayor will realize his dream.
On the other hand, if you’re selling a house, things are great for you. Housing prices are rising fast, with Echo Park being the neighborhood with the strongest market.
Want fast and convenient money to buy or sell? And a lender who ignores your credit?
Contact commercial hard money lenders in the neighborhood. They’re one of the most reliable resources available for you and are growing more popular as the market becomes pricier.
You may want to do your research, though, before you get one.