Fires, tariffs and high interest rates: L.A. housing construction plunged at start of year

Housing construction in Los Angeles plunged during the first quarter of 2025, according to a new report, a drop-off that could ultimately worsen the city’s affordability crisis.

The city approved permits for 1,325 new homes during the first three months of 2025, down nearly 57% from the same period a year earlier.

In the report released Tuesday, research firm Hilgard Analytics blamed the sharp decline on a variety of factors that have made it more difficult for developers to turn a profit, including high interest rates, tariffs and economic uncertainty, as well as a property-transfer tax known as Measure ULA.

Hilgard principal Joshua Baum said the January wildfires probably also played a role by causing widespread business disruptions.

Declines in the first quarter were reported in most areas of the city, but the steepest drop-offs were in council districts that cover the west and northeast portions of the San Fernando Valley, as well as South Los Angeles.

Though the fire impact could be temporary, housing construction had been falling before January, with citywide permits down 23% in 2024 from 2023, according to Hilgard, which analyzes data from the Los Angeles Department of Building and Safety that includes permits for new single-family and multifamily buildings, but not accessory dwelling units.

A sustained pullback in housing development could have big implications for a city in the throes of an affordability and budgetary crisis.

In general, economists say, building more homes reduces upward pressure on home prices and rents, and new development also tends to boost tax revenue.

On Monday, Los Angeles Mayor Karen Bass announced plans to eliminate more than 2,700 city positions to help close a nearly $1-billion budget hole.

“If we aren’t building now, from a long-run perspective, that says higher prices and higher rents at some point in time in the future,” said Christopher Thornberg, founding partner of consulting firm Beacon Economics.

A decline in development isn’t unique to the city.

Housing developers have been starting fewer projects nationwide as they deal with high interest rates and the more recent phenomenon of tariffs.

Some developers say Measure ULA, a new Los Angeles tax on large property sales, has made the environment worse in the city compared with the rest of the county and nation, and caused even more projects to be killed.

Hilgard did not examine housing construction outside the city in its report.

However, a recent analysis from researchers at UCLA and Rand Corp. estimated that housing construction is probably falling more in the city than elsewhere in L.A. County, citing a steeper reduction in the sales of properties where developers tend to build multifamily housing.