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11/12/24
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This year’s University of Southern California Casden Real Estate Economics Forecast predicts rent increases for the next two years throughout Southern California.
The annual report, which assesses current market conditions and makes two-year projections for multifamily rents in vacancies in Los Angeles, Orange, San Diego, Ventura Counties and the Inland Empire, also noted that the economy’s surprising resilience cannot alleviate the regions’ dire housing shortage. The forecast pairs its 24-month housing projections with a look at how stubborn inflation, soaring interest rates, and lagging housing supply have coalesced to produce a national and local housing crisis.
“While fighting inflation, the Federal Reserve accomplished their soft landing after holding mortgage rates historically high. Though the economy has proven quite robust, new housing supply and affordability remain on shaky ground,” noted forecast author Moussa Diop, Associate Professor of Real Estate at the USC Sol Price School of Public Policy. “As rates drop slowly, the mortgage market will improve, but we’ve experienced a construction slowdown in an area dangerously tight on new supply. Meanwhile, states like Florida and Texas are outbuilding us. When it comes to housing, California is falling behind.”
With a sturdy economy in-hand, the forecast notes Sunbelt states building housing stock above the national average while California lags. With a national average of adding 1.03% of existing stock, states like Georgia and North Carolina are upping the ante by building an additional 1.53% and 2.01% of stock, respectively. Meanwhile, California contributes a paltry 0.67% as persistent outmigration slows. California had net domestic outmigration of about 250,000 people in 2023, more than the population of Boise, Idaho.
Diop and co-author Eunha Jun, a USC Lusk Center Research Associate, also point out that fiscal policy is just one part of the housing equation. New supply suffered because of a tight lending environment, but local regulations have eroded the flexibility of housing supply for decades. Each region’s capacity to respond to demand is stymied by long-standing regulations and short-term solutions, such as rent control measures.
“The Fed is doing its part to stabilize the economy, but most housing control is local. Outside of California, other regions are facilitating the supply of desperately needed housing, despite higher mortgage rates. From pinpointing regulation that encourages development to updating zoning to increase density, there is a lot of low-hanging fruit in Southern California.” Diop said.
Looking forward, 2025-2026 will largely produce more of the same: rising rents and insufficient housing to meet demand, with a few notable exceptions. The annual forecast provides current and projected multifamily rents and vacancies for the next eight quarters in five regions: Los Angeles, Orange, San Diego, and Ventura counties, and the Inland Empire:
LOS ANGELES COUNTY
Los Angeles County suffers from an endemic housing shortage. Though forecasted rent growth remains moderate, dipping just below 1% next year and returning to about 2% in 2026, this short-term softening cannot not provide long-term relief. What looks favorable to renters could mean other regions attract the attention of developers building new housing.
The supply problem will only worsen as the effects of delayed new unit deliveries hit the market. Over the last decade, the county has averaged only about 100,000 new rental units. That is the equivalent of taking 10 years to add about two and a half projects the size of Park La Brea to a county that is slightly larger than Delaware and Rhode Island combined. Recent deliveries are even more stark. Since 2020, new units have been 12.4% below pre-pandemic levels.
While new supply dwindles, Los Angeles County outmigration has slowed but remains significant. 88,500 people left the region in 2023, roughly the size of Alhambra, CA. LA County has a critical need for more housing.
July 2024: $2,269 average rent; 5.40% vacancy rate
July 2026 Forecast: $2,334 average rent; 4.45% vacancy rate
Average Annual Rent Growth: 1.46%
ORANGE COUNTY
Orange County remains the most expensive rental market in Southern California, with surging outmigration as a result. While forecasted rent growth hovers around 2% and with vacancies projected to reach 4.5% by 2026, the county’s high rents continue to climb further out of reach for middle and low-income residents. New multifamily units are concentrated in the more affordable Anaheim-Santa Ana and North County submarkets, leaving coastal areas severely undersupplied. Unlike the rest of Southern California, Orange County outmigration intensified with a record high 37,500 residents leaving in 2023, greater than the amount of people residing in the city of Dana Point. Though the region’s economic strength persists, increased development in affordable submarkets may provide the only relief to Orange County’s chronic housing crisis.
July 2024: $2,653 average rent; 4.02% vacancy rate
July 2026 Forecast: $2,786 average rent; 4.59% vacancy rate
Average Annual Rent Growth: 2.34%
SAN DIEGO COUNTY
San Diego’s housing supply provides a striking contrast to other markets, particularly Orange County. Both counties experienced double-digit rent increases during the COVID-19 pandemic. Despite having similar vacancy rates around 4%, San Diego County responded aggressively to the demand surge. Since 2021, San Diego County added twice as many apartment units as its northern neighbor. As a result, San Diego’s average rent is nearly $200 per month lower than in Orange County ($2,463 vs. $2,653). The area also experienced less outmigration, with a net 11,800 residents lost in 2023. The next 24 months show the county’s vacancy dropping from 5.5% to 4.5% in 2026. Meanwhile, rent will grow from just under 1% to 3.7%. As new unit deliveries slow in the coming years, San Diego County is poised to respond appropriately with more development.
July 2024: $2,463 average rent; 5.52% vacancy rate
July 2026 Forecast: $2,604 average rent; 4.47% vacancy rate
Average Annual Rent Growth: 2.17%
VENTURA COUNTY
Ventura County’s constricted housing supply and consistently high demand vault it to Southern California's second-most expensive asking rent. One of the region's wealthiest counties, single-family homes dominate the rental market, making multifamily options scarce. Though a surprising 869 new units were added last year, supply remains too low and development too sporadic to ease affordability concerns as projected rent growth rises to 3.5% through 2026. In and out migration remains relatively level, keeping demand high. Without an aggressive multifamily development strategy, rents will continue to skyrocket.
July 2024: $2,590 average rent; 5.17% vacancy rate
July 2026 Forecast: $2,775 average rent; 4.69% vacancy rate
Average Annual Rent Growth: 3.18%
INLAND EMPIRE
The Inland Empire has leveraged its strategic location to become an economic powerhouse in Southern California, and it has met that rise with housing supply in-kind. The region experienced growth from the e-commerce surge and deglobalization during the COVID-19 pandemic. Meanwhile, housing demand exploded and rent growth along with it. In response, the Inland Empire initiated a multifamily construction boom. As a result, vacancy is forecasted to drop to 5.5% from a high of 6.9% at the end of 2023, with rent growing steadily at 4% for the next two years. As the Inland Empire benefits from neighboring housing shortages and onshoring trends, the region must keep growing housing supply to remain a viable alternative to renters seeking refuge from Orange and Los Angeles counties.
July 2024: $2,046 average rent; 6.31% vacancy rate
July 2026 Forecast: $2,211 average rent; 5.45% vacancy rate
Average Annual Rent Growth: 3.2%
About the USC Lusk Center: The University of Southern California Lusk Center for Real Estate seeks to advance real estate knowledge, inform business practice, and address timely issues that affect the real estate industry, the urban economy, and public policy. The Lusk Center produces relevant and timely real estate research, supports educational programs for students and executives, and convenes professional forums that bring together academics, students, business executives, and community leaders.
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