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10/18/17
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The 2017 University of Southern California Casden Economics Forecast finds that rising employment combined with an ongoing lull in homeownership will again drive rent increases over the next two years throughout the region.
The forecast, which is produced annually by the USC Lusk Center for Real Estate in partnership with Beacon Economics, finds that by 2019, average monthly rents are expected to increase over their 2017 levels by $136 in Los Angeles County, $149 in Orange County, $124 in the Inland Empire, $121 in San Diego County, and $98 in Ventura County.
USC Lusk Center Director Richard Green, who co-authored this year’s forecast with a team of economists from Beacon Economics, points out that the seven years of economic recovery have not produced a commensurate rebound in homeownership.
“It’s certainly no surprise to anyone – developers, landlords, tenants and elected officials – that available units are becoming more scarce and more expensive in Southern California,” Green said. “As employment and wages improve in the region, homeownership remains stagnant. This combination is a key stressor in the availability and cost of apartments and has an increasing impact on the local economy.”
Given the general rise in employment, wages and population across the region, this year’s forecast pays particular attention to the rent paid by new tenants, versus those who have remained in the same apartment.
For the first time since the Gold Rush, a majority of California residents were born in the state. According to the forecast, local renters who moved from another state paid $200 more than current residents while renters who moved from elsewhere in California paid about $124 more.
Forecast Co-author and Beacon Economics Founding Partner Christopher Thornberg notes that both current and forecasted rents might understate the challenges faced by new residents and local employers.
“Our forecast combines rents paid by both long-time renters, many of whom live in rent-controlled units, and new tenants who are paying rent in Southern California for the first time,” Thornberg said. “The high cost of housing is a huge challenge for employers attempting to recruit out-of-state talent.”
Overall, the forecast’s authors conclude that rent growth is outpacing income growth at a level that is not sustainable. The result, they contend, will be an ongoing negative impact on tenants and employers in each of the forecast’s five regions.
The annual forecast, which assesses current and projected multifamily rents and vacancies in submarkets across five regions – Los Angeles, Orange, San Diego and Ventura counties, and the Inland Empire, provides the following outlook for each region:
LOS ANGELES COUNTY
While the county effectively reached full employment in 2017 – an unemployment rate of 4.5 percent – the economy has advanced at a somewhat subdued pace. Population increases combined with more Millennials entering their late 20s and early 30s will drive multifamily demand as homeownership remains low.
2017 Levels: $2,237 average rent; 3.94 percent vacancy rate
2019 Forecast: $2,373 average rent; 3.91 percent vacancy rate
ORANGE COUNTY
A steep decline in multifamily construction permits coincides with decreasing unemployment and rising demand for housing. Though the apartment stock will increase as previously-permitted projects are completed, single-family homes, which have already rebounded to pre-recession levels, will become less affordable and drive up rents.
2017 Levels: $2,008 average rent; 3.87 percent vacancy rate
2019 Forecast: $2,157 average rent; 3.50 percent vacancy rate
SAN DIEGO COUNTY
With 17,200 jobs added from July 2016-July 2017 and a 1.5 percent population increase since 2015, the county’s home prices, sales and rents are projected to increase over the next two years. Housing stock will increase, albeit slowly, leading a very slight uptick in the vacancy rate. Overall, however, supply will fail to meet demand.
2017 Levels: $1,927 average rent; 3.92 percent vacancy rate
2019 Forecast: $2,048 average rent; 4.03 percent vacancy rate
VENTURA COUNTY
Despite the county’s affluent population and high rate of homeownership, its economy has grown relatively slowly and is the only market yet to reach pre-recession levels of employment. Just as in the other counties, the rate of homeownership has dropped. Nevertheless, increasing rents have spurred a multifamily construction. As a result, both rents and vacancies are projected to rise.
2017 Levels: $1,956 average rent; 3.78 percent vacancy rate
2019 Forecast: $2,054 average rent; 3.93 percent vacancy rate
INLAND EMPIRE
The Inland Empire’s surging economy has pushed unemployment to its lowest rate since 2006. Though still the region’s hub of affordable housing, job and population growth have pushed up rents and home prices while driving down apartment vacancies. The lack of affordability in Los Angeles and Orange counties will continue to attract both buyers and renters to Riverside and San Bernardino counties and contribute to increasing rents and decreased vacancies.
2017 Levels: $1,449 average rent; 4.18 percent vacancy rate
2019 Forecast: $1,573 average rent; 3.8 percent vacancy rate
The 56-page report was produced by the USC Lusk Center for Real Estate and prepared by Green and a three-person Beacon Economics research team that included Thornberg, Robert Kleinhenz, executive director of research, and Adam Fowler, research manager.
The complete 2017 USC Casden Real Estate Economics Forecast, which contains additional analysis and projections for the dozens of submarkets that comprise the five larger markets in Southern California, was presented to a gathering of hundreds of industry professionals in Los Angeles on October 11.
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