More tenants ‘feeling the pain’ after 9 years of rent hikes

Apartment rents hit all-time highs by the end of 2019, although the pace of rent hikes has slowed.

Southern California apartment rents have risen for nine straight years, hitting all-time highs by the end of 2019 and making renting unaffordable for a growing share of middle-income renters.

A Southern California News Group review of data from four key apartment trackers found average apartment rents in Los Angeles and Orange counties hovered around $2,100 a month by the end of 2019. Inland Empire apartment rents averaged about $1,500 a month by year’s end.

SCNG’s rent index is based on the average of fourth-quarter rent numbers from commercial real estate data firms CoStar, Reis Inc., RealPage and Yardi Matrix.

After 35 quarters of steadily rising rents, there’s more housing instability among the region’s poorest tenants, a Harvard University study released Friday, Jan. 31, concluded. And, the report added, the number of  “cost-burdened” renters — those spending more than 30% of their income on rent, the amount considered affordable — is rising up the income ladder.

In 2006, 38% of Southern California households with incomes between $45,000 and $75,000 a year were cost-burdened, according to data from the Harvard center’s “America’s Rental Housing 2020.” By 2018, the number increased to 46% in the Inland Empire and 56% in Los Angeles and Orange counties.

Among renters earning $75,000 or more a year, the number of cost-burdened tenants decreased in the Inland Empire in 2018, but increased to 14% of renters in L.A. and Orange counties, up from 10% 12 years earlier.

“The affordability crisis is worsening,” said Whitney Airgood-Obrycki, lead author of the Harvard center report. “And as it rises up the income scale, more people are feeling the pain.”

Over the past nine years, apartment rents increased between 43% to 53% in Los Angeles, Orange, Riverside and San Bernardino counties, with hikes ranging from around $500 a month in the Inland Empire to over $700 a month in L.A. County.

That adds up when you consider the region has more than 2.7 million renters

Renters in the four-county region collectively paid $46.6 billion in rent last year — 2.5% more than in 2018 and 40% more than in 2010, according to a recent analysis by real estate website Zillow. For the decade as a whole, Southern California tenants generated $409 billion in rental revenue.

Rent hikes slowing
There is some good news for tenants in the latest rent reports, however.

While rents keep going up, they’re not going up as fast, the new figures show.

Year-over-year rent gains ranged from 3-5% in Southern California, compared with increases in the 6-8% range when rent hikes peaked in 2015, SCNG index data shows.

Experts attribute lower rent growth to a slowdown in the economy and an increase in construction.

“The U.S. and California economies are slowing,” said Barbara Dunham, a Reis senior economist. “(They’re) still positive, but at decelerating growth rates.”

Greg Willett, chief economist for RealPage, noted that more apartment buildings are expected to open in 2020, especially in Los Angeles County, prompting landlords to keep rents in check to fill their buildings.

For example, Los Angeles County apartment developers are projected to complete about 17,600 new apartments this year, compared with 7,600 units completed in 2019, Willett said.

Developers are expected to complete 2,600 new apartments in Orange County this year, up 15% from 2019, and about 2,100 new apartments in the Inland Empire, up 11%.

“The owners and operators see this coming,” Willett said. “You try to get your buildings as full as possible before this new supply hits.”

In addition to building in downtown Los Angeles, developers are adding apartments in places like the Mid-Wilshire area, Hollywood, Northridge and Long Beach, Willett said.

“(They’re) moving out a little bit from the downtown core,” he said.

There are contradictions in the data.

While the four commercial data trackers all show rent growth slowing, for example, the government’s Consumer Price Index for Los Angeles and Orange County rentals shows rent hikes at 12-year highs in 2019. The CPI showed L.A.-Orange County rents rose 5.5% last year — about 2 percentage points higher than the commercial apartment trackers reported.

Experts say the rent CPI measures a different sector of the rental market that includes rental houses and smaller, older mom-and-pop apartment complexes the commercial indexes often overlook.

Among the nation’s priciest
In the apartment sector, at least, Southern California rents are among the nation’s highest.

Reis’ ranking of 82 U.S. metro areas shows Los Angeles County had the nation’s ninth-highest asking rents during the final three months of 2019. Orange County ranked 12th highest and the Inland Empire ranked 26th.

While rising rents are taking a toll on renter budgets, data show there are more and more well-heeled tenants competing for rental units.

As a result, renter incomes have been keeping pace with rent growth since 2010, an analysis by Beacon Economics shows.

“You have low-income families moving out of California and high-income families moving into California. It’s major gentrification,” said Chris Thornberg, Beacon’s founding partner. “The increase in rents you’re seeing in the data is largely driven by people’s ability to pay.”

The Harvard center’s data also show more higher-income households joining the ranks of renters, either as a lifestyle choice or because they can’t afford to buy a home of their own.

For example, renter households earning more than $75,000 a year increased 39% since 2010 in L.A. and Orange counties and increased 35% in the Inland Empire, Harvard center figures show.

Nationally, families with children now make up 29% of all renter households but just 26% of owner households. When homeownership peaked in 2004, both renters and homeowners with children represented 32% of their respective categories.

The rising costs of homeownership contributed to this trend, the Harvard center report said, keeping many higher-income households in the rental market at ages when they might be expected to buy homes.

The Harvard center rent report showed that six out of 10 Inland Empire households earning less than $30,000 a year are “severely cost-burdened,” meaning they spend at least half of their income on rent. And seven in 10 L.A.-Orange County households in that income category are severely cost-burdened, the report showed.

“You have very little left over to pay for everything else in your life,” Airgood-Obrycki said. “If you think about trying to live the rest of the month on $500, there are big trade-offs. With this precarity comes a higher risk of eviction and homelessness.”

The most common trade-offs for the poor is spending more on rent and less on food and medical care, Airgood-Obrycki said.

“It’s not good for families.”

By JEFF COLLINS | JeffCollins@scng.com | Orange County Register

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