Patrick Inglis is VP of JLL capital markets.
LOS ANGELES—Homeownership is steadily declining In Los Angeles, and has been for years. New research from JLL shows that the city has the lowest homeownership rates in Los Angeles, with only 46.5% of residents owning a home. This is well below the national average of 62.9%. The rate has been dropping over the last decade. In 2006, homeownership was at 53.8% and has fallen nearly every year since, with the exception of 2010 to 2012 when the rate was nearly flat. By comparison, Riverside currently has a 62.6% homeownership rating, followed by Sacramento with 61%; San Francisco with 53% and San Diego with 52.1%. To find out the reasons why the homeownership rate is so much lower than other California markets, what is driving homeownership down and what this means for the commercial real estate market, we sat down with Patrick Inglis, VP of JLL capital markets for an exclusive interview.
GlobeSt.com: Why is home ownership continuing to decline in Los Angeles?
Patrick Inglis: Home ownership is declining as home prices in Los Angeles continue to rise, and the millennial generation's continued preference to rent. The median home price in Los Angeles County as of August was $517,000 according to CAR, up $25,000, or 5.1% from last year. Furthermore, the County's median income however, has only grown 2.5% and 4.0% between 2014-2015 and 2015-2016, respectively.
Why aren't other California markets experiencing the same decline in homeownership?
Inglis: I think our current snapshot of home ownership is tied to the income and home price disparity, which has previously been the highest in the nation. We are witnessing a contest between wage growth and home appreciation. The following factors will sway the contest: Speculative investor activity; offshore investment activity; credit and attractive interest rates; supply-home builders have yet to rally and provide FHA eligible product; housing prices, which may cause speculative investors to sell, if they soften; converting home renters into homeowners as multifamily fundamentals remain strong.
GlobeSt.com: Do you expect homeownership to continue to decrease in Los Angeles?
Inglis: The current rate of homeownership in Los Angeles is approximately 16% below the U.S. national average, and the lowest percentage among all other California metropolitan areas. We expect this decline will slow and likely plateau, but remain at a low level for some time.
GlobeSt.com: How does the decline in homeownership affect the CRE market?
Inglis: Low homeownership continues to buoy the Multifamily sector of CRE, as strong rent growth, low occupancy rates, and rapid absorption of new product has driven per-unit sales pricing up approximately 48% since 2010. The cap rate spread to treasury rates is still historically high offering real estate investors an attractive yield premium compared to other investment alternatives.
GlobeSt.com: What does this say about the economy and economic growth in Los Angeles?
Inglis: Multiple positive economic indicators such as continued wage growth, job gains, low unemployment, and population growth reflect positively on the Multifamily sector and we expect it will continue to outperform over the next few years. Although Los Angeles lagged many leading markets in its recovery, our diverse economic engine has gained momentum, which bodes well for the coming years.
Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What's driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.
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Kelsi Maree Borland
