Rents Rise to Record Levels in Southland

Apartment rents throughout the Southland rose to record levels over the last year, crossing the average $1,000-a-month mark for the first time in Orange County, as the region’s economy cranked out far more jobs than it did housing.

Mirroring a sharp increase in home prices during the last year, rents rose an average of 6.9% across the region as occupancy rates climbed to an average of 97.4%, according to RealFacts, a Novato real estate research firm.

In Los Angeles County, the average apartment rent jumped 7.8% to $982 a month, about 19% higher than the national average of $828.

Orange County led the region with the highest average monthly rent at $1,003. Apartments were hardest to find in Ventura County, where 98.5% of units were occupied.

Analysts called the trend a troubling one, noting that the higher rents will force many families to seek cheaper housing inland, leading to longer commutes, more freeway congestion and more smog.

“Eventually, we become a city of only very rich or very poor,” said Ann Sewill, executive director of the Enterprise Foundation in Los Angeles, a nonprofit group that works to encourage the building of affordable housing. “Everyone else who has a choice will go elsewhere.”

Record-high rents also make it more difficult for growing companies to attract workers, eventually causing some businesses to leave the area as higher costs make them less competitive. That scenario unfolded in the Southland a decade ago, and was a major contributor to what became the recession of the early 1990s.

Already, inflation in Southern California has more than doubled from a year ago, to an annual rate of 2.5%, largely because of higher housing prices, said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp.

“But the general response is [a] yawn,” Kyser said. “Right now, everybody’s happy with what’s going on, jobs are plentiful and times are good in Southern California. They just don’t want to deal with the issue. There’s a housing shortage looming in Southern California.”

Southern California’s median home price--meaning that half sold for more, half for less-- hit an all-time high of $204,000 in June, dimming for many families the dream of home ownership.

And with home prices at record levels, landlords are finding it easier to hike rents without losing tenants, analysts said.

But the rising rents also threaten to disrupt the housing cycle, which is critical to Southern California’s economy. With rents taking a larger portion of incomes, families will have a harder time saving for a down payment on a home, said G.U. Kreuger, an analyst at the California Assn. of Realtors.

Indeed, many middle-class civil service employees such as police officers, firefighters and schoolteachers are already struggling to afford rents in L.A. and Orange counties and are at even greater risk of being priced out of the housing market altogether, according to analysts and state government surveys.

Ironically, housing construction in Southern California this year is expected to reach its highest level in a decade, running more than 30% ahead of year-ago levels. About 15,000 permits for new homes and more than 4,700 permits for apartments, condominiums and townhouses were issued in Los Angeles, Orange and Ventura counties through June, according to the Construction Industry Research Board.

But a study released earlier this week by the Irvine-based Meyers Group housing research firm found that Los Angeles County led the nation in housing demand, with only one new home being built for every six new jobs created. Orange County ranked fifth in that survey, Ventura County 17th.

The RealFacts rent study surveyed 1,196 apartment complexes containing at least 73 units in Los Angeles, Orange, Ventura, Riverside and San Bernardino counties.

Builders are finding it more difficult to develop multifamily projects because of a growing number of obstacles. Apartment projects often face vigorous opposition from homeowner groups, which fear that the units will lower property values.

Land also is harder to come by, especially in popular coastal areas near big job centers.

“If the trends continue, you’re going to see a substantial shortage in housing,” said Dan Faller, president of the Apartment Owners Assn. of Southern California.

Nowhere was the growing gap between the housing haves and have-nots more apparent than in Los Angeles County, where the highest average rent was in Brentwood, at $3,233 a month, and the lowest in Compton, at $483 a month.

Poorer families will be hit hardest by rising rents in a region already identified as having four low-income renters for every unit available. The problem has grown worse as more landlords have opted out of federal subsidy programs that have preserved thousands of rental units throughout Southern California for low-income earners.

The Los Angeles Housing Department said that 25% of poor renters live in overcrowded conditions, many of them having seven or more people sharing a two-bedroom apartment. Those numbers will only get worse as rents rise, analysts said.

In well-to-do-areas, the effects of a tight rental market also have been dramatic. In Marina del Rey, a new 170-unit luxury apartment building boosted rents 10% above the rates originally planned. More than 90% of the units, with rents ranging from $1,000 to $3,000 a month, were leased within months of being offered.

In Santa Monica, where rent control ended earlier this year, landlords have offered tenants in one-bedroom apartments as much as $20,000 to leave so that they can raise rents to market rates.

And in Orange County, there are waiting lists for studio apartments in Irvine that rent for $1,075, and for two-bedroom penthouse units in Newport Beach that command $4,000 a month.

Other renters also are getting squeezed. Move-in specials such as a month’s free rent, once common throughout Southern California, have all but ended. And more properties are being upgraded so that landlords can charge more.

Tenants in popular locations can expect rent increases of 10% to 15% when their leases expire, said Stephen Stein, Los Angeles regional manager for Marcus & Millichap, one of the nation’s largest apartment brokerages.

He said landlords are trying to recoup losses suffered during the economic downturn earlier this decade, when rents barely budged.

In Orange County, for instance, rents rose just 4%, or an average of $31, over an eight-year period ended in the mid-1990s, according to Research Network Limited.

But that is little consolation to renters.

“We’re almost to the point of being in a crisis for finding decent rentals,” said Joe Carreras, planning manager of the Southern California Assn. of Governments.

“People who didn’t think they would have a problem finding a home to rent now have a problem.”

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Rising Rents

Southland apartment rents rose an average of 6.9% in the second quarter and hit record highs in the five major counties. Here’s a look at rental statistics in each county:

Los Angeles

Average rent: $982

% increase from year ago: 7.80%

Average occupancy rate: 97.40%

Highest average rent: Brentwood: $3,233

Lowest average rent: Compton: $483

Average studio: $680

Average 2-bed, 2-bath: $1,140

Average 3-bed, 2-bath: $1,343

Orange

Average rent: $1,003

% increase from year ago: 7.81%

Average occupancy rate: 97.40%

Highest average rent: Newport Beach: $1,634

Lowest average rent: La Habra: $797

Average studio: $715

Average 2-bed, 2-bath: $1,152

Average 3-bed, 2-bath: $1,283

Ventura

Average rent: $938

% increase from year ago: 7.40%

Average occupancy rate: 98.50%

Highest average rent: Newbury Park: $1,072

Lowest average rent: Port Hueneme: $813

Average studio: $666

Average 2-bed, 2-bath: $1,049

Average 3-bed, 2-bath: $1,219

Riverside

Average rent: $671

% increase from year ago: 5.42%

Average occupancy rate: 96.70%

Highest average rent: Corona Hills: $860

Lowest average rent: Banning: $415

Average studio: $467

Average 2-bed, 2-bath: $732

Average 3-bed, 2-bath: $830

San Bernardino

Average rent: $702

% increase from year ago: 6.09%

Average occupancy rate: 96.90%

Highest average rent: Chino Hills: $954

Lowest average rent: Victorville: $512

Average studio: $522

Average 2-bed, 2-bath: $754

Average 3-bed, 2-bath: $851

Source: RealFacts