Why Apartment Rents Keep Heading Up

Los Angeles rents are continuing to head up. According to a new report from Apartment List, the average price for a two-bedroom apartment in Los Angeles was up 2.1% in the first quarter to $1,740 per month. Rents have been steadily heading up for the last several years, however, the rate of growth slowed late last year. This research shows that rent growth is actually picking back up this year. Los Angeles apartments rental rates now trend above California and the nation.

“The median rent in L.A. dipped slightly from last September through the beginning of this year, but has since started to increase again,” Chris Salviati, housing economist at Apartment List, tells GlobeSt.com. “This trend is typical of seasonality in the rental market—fewer renters move in the fall and winter months, and so prices tend to decline slightly during this off-season, with the biggest increases seen in the late spring and summer months, when rental activity is at its peak.”

Although the growth is picking back up, Salviati says that it is still modest growth. While the supply shortage is the cause for the increase—and the shortage still exists—the growth rate is growing as the result of the steep increase in rent growth over the last several years. “Rents in L.A. are up 2.1% year-over-year, which is a bit ahead of the national average of 1.5%, but still represents relatively modest growth,” he says. “That said, flattening rent growth does not necessarily imply that there isn’t a shortage of housing supply in L.A. Rents in L.A. have increased sharply in recent years, so despite the flattening, these elevated levels are indicative of a constrained market.”

Another reason for the slowed growth rate is that some people may be moving out of Los Angeles in response to the increasing rents. “Renters in the area may be expanding their searches outside of L.A. proper, leading to faster growth in some of the surrounding areas: Santa Clarita, Garden Grove, and Lancaster have all seen year-over-year growth of around 5%, for example,” says Salviati. “Finally, L.A. has seen a fair amount of new supply come online recently, primarily at the luxury end of the market—an oversupply of new luxury units may be dampening growth at the high end of the market, leading to the flattening of the overall rate. However, I suspect that the middle and lower ends of the market are still tightly supply constrained.”

The new development has concerned some market experts that rents may decline as a result of the new supply. However, Salviati says that this would only impact the high-end, luxury markets. “New development has been primarily serving the luxury end of the market,” he explains. “I think there may be concern that the new deliveries could result in a softening market for these types of properties, but the middle and lower segments will remain constrained.”

Ultimately, the hosing shortage in Los Angeles will keep rents moving upwards for the foreseeable future. “L.A. has a strong local economy driving demand,” says Salviati. “A lack of affordable options in L.A. proper is likely driving some renters to expand their housing searches to the surrounding areas, leading to rent growth in these cities.”