Experts David Kim (center) and Dwight Jaffee (right) debate on housing with Richard Green moderating (Priyanka Deo/NeonTommy)

Renters already have trouble finding affordable housing and paying high rent in Los Angeles. A UCLA study marked Los Angeles as the most unaffordable rental market in the United States in 2014. The same study discovered that on average, renters are spending just about half of their annual income on rent.

Rising Rent

The 2014 USC Casden Multifamily Forecast estimated rent values to continue to rise throughout the city as the current demand for rental housing overtakes the completion of new spaces. The discussion on the forecast held in downtown on Wednesday included a panel debate with experts predicting the future of multifamily housing.

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The root cause of this problem is low incomes and high rental values, according to the the forecast. While L.A. rents are currently higher than both New York and San Francisco, L.A. has a lower average income than either city. Nationally, Los Angeles has a high ratio of renters as compared to home owners. While the national average for renters is approximately 35 percent, Los Angeles’s average is over 50 percent.

The forecast analyzed the four Southern California markets. Apartment vacancies declined over all regions over the past year. In L.A. county, the vacancy rate dropped from 10.8 percent to 3.3 percent in one year. Orange County experienced a 14 percent decrease. Although these percentages are significant, other areas had more severe vacancy rates. The Inland Empire showed a 30 percent decline to a 3.8 vacancy rate.

With few rental spaces available, it is not unexpected for rent prices to rise. Economists expect the average rent in L.A. to increase by over 8 percent by June 2016. Currently, citizens in L.A. pay anywhere from $800 to just over $2500 per month. With wages remaining flat across the country, this poses a problem.  

“The affordability issue is a cause of great concern,” stressed Richard Green, director of the USC Lusk Center for Real Estate. He co-authored the forecast along with USC researchers Vincent Reina and California Association of Realtors Senior Economist Selma Help.

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Even though both employment and the overall economy have improved, renter incomes in Los Angeles remain stagnant. 

Green stated, “About half the people in LA county are renters and about half the renters now live in multifamily housing property. The city is mostly multi-family housing.

Multifamily Homes

Over 7,500 multifamily spaces were added in Los Angeles from 2013 to 2014. Although this was an over 60 percent increase from last year, there was still a high demand and low supply of available rentals.  

According to the forecast, as of June 2014, renters in L.A. paid an average of about $1700 per month. This was the highest in the region and almost a four percent increase from 2013. The average in Orange County and San Diego County was approximately $1650 and $1500 per month respectively. The Inland Empire, which had the most affordable rental rates; around $1100 per month; saw the sharpest increase at over 4 percent.

On Wednesday, expert panelists debated the forecast trends and whether the federal government should play a role in housing finances or not. David Min, a nationally recognized expert on financial markets regulation, felt that a government role was important since [the government] has always played a major role in multifamily housing financing since the early 1900s. Dwight Jaffee, Berkeley professor of Banking and Finance, argued more for privatization but did state that the federal government was necessary for housing financing policies such as rental mortgages.

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All three experts stated that whatever the outcome may be, nothing is expected to lower rent rates in the near future.

“Within the Republican party, there’s no agreement on what to do," Green explained. "So if you have a fight within the Republican party on what to do let alone a fight between Democrats and Republicans on what to do, it is hard to imagine that anything will happen anytime soon. “

While the government continues to disagree, the average rent in all four regions is only expected to increase over the next two years.

Los Angeles citizens can either prepare themselves to pay a higher rent or work on getting that promotion.

The forecast contains additional analysis for all 52 submarkets that comprise the four regions in Southern California. The complete USC Casden Multifamily Forecast will be made available online on Wednesday October 8 here.   

The University of Southern California Lusk Center for Real Estate aims to advance real estate knowledge, inform business practice, and address timely issues that affect the urban economy as well as public policy.

2014 Rental Values in LA Regions (Approximate values)

LOS ANGELES COUNTY

Highest Average Rent: Santa Monica/Marina del Rey- $2618

Lowest Average Rent: Antelope Valley- $829

ORANGE COUNTY

Highest Average Rent: Newport Beach- $2223

Lowest Average Rent: Anaheim- $1300

INLAND EMPIRE

Highest Average Rent: Rancho Cucamonga/Upland submarket- $1384

Lowest Average Rent: Victorville/Outer San Bernardino- $797

SAN DIEGO COUNTY

Highest Average Rent: Carlsbad/Encinitas/Del Mar- $1834

Lowest Average Rent: Escondido- $1119

Reach Staff Reporter Priyanka Deo here.