Introduction to the Crisis
Drive around Riverside County and signs for new apartment complexes are all over the 60, 15 and 215 freeways. Major new constructions in Beaumont and Riverside have led Riverside County to boast the third biggest year-to-year growth in apartment completions in the nation at 154.1%, according to apartment search website Rentcafe.com. Contrast that with the city of Los Angeles, where building apartments has become too costly, and potential profits are unstable. If your search for a new place in L.A. has seemed overly difficult, here’s why.
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What’s Happening with New Apartment Builds?
The supply of fresh rental units, which make up the bulk of new housing in Los Angeles, is petering out despite robust demand. The vacancy rate is among the lowest in the country, while rental rates are among the highest. Still, the number of new units under construction in Los Angeles has been falling each quarter since early last year and is set to dive to a 10-year low, according to real estate data provider CoStar. Fewer than 19,000 apartments were under construction in the three months through September. That’s 30% fewer than three years earlier, according to CoStar’s count.
Less Profits Equals Less Building
Ari Kahan, a principal of California Landmark Group, used to have multiple projects with as many as 800 total units being built in Los Angeles at any given time. No more, he said. “We haven’t bought a site with the intention to develop it in over two years,” he said. “I don’t know when we will be building in L.A. next.” Developers say they can’t raise the money to build because many of their biggest backers — pension funds, insurance companies and other institutions looking for long-term investments — don’t want to park their money in L.A. because the rapidly changing rules make it impossible to predict profits. “L.A. has been redlined by the majority of the investment community,” said Kahan.
Federal Policy Adds to the Headache
Higher tariffs have sparked rising prices in construction materials and equipment, while the crackdown on undocumented workers has thinned and spooked much of the international workforce the industry depends on. “Prices rose at an especially rapid pace in some of the categories most affected by tariffs,” including iron and steel prices, which have risen 9% in the last year, and copper wire and cable prices, which have jumped 14%, said Anirban Basu, chief economist of trade group Associated Builders and Contractors. California’s construction industry depends on immigrant workers. Around 61% of construction workers in the state are immigrants. Of that group, 26% of those are undocumented, according to a June report from the Bay Area Council Economic Institute.
What Do the Numbers Say?
Housing production in Los Angeles County has slowed dramatically over the decades, dropping from more than 70,000 new units annually in the 1950s to roughly 30,000 in the 1970s and 1980s to fewer than 15,000 in the 2010s. This long-term slowdown in housing construction has left the region with an older, more strained housing stock and a deep shortfall in affordable options. That’s according to findings from a new USC project that collects housing data on Los Angeles County neighborhoods.
Solutions Can Be Found…Outside of L.A.
The cost of building new apartments in Los Angeles is also hard on renters. At the current construction price, developers need to charge between $4,000 and $5,000 per month in rent, depending on the apartment size, making affordability an issue. Rentcafe suggests a renter will need to make about $13,400 in gross monthly income to afford $4,000 in monthly rent. Developers predict people will have to move farther out and commute times will grow.
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Conclusion
The crisis in apartment construction in Los Angeles is a complex issue with multiple factors contributing to the decline in new builds. From the high cost of construction to the unpredictability of profits due to changing regulations, developers are finding it increasingly difficult to build new apartments in the city. This has led to a severe shortage of affordable housing options, forcing renters to look elsewhere or face long commute times. The situation calls for innovative solutions and policy changes to incentivize developers and address the housing crisis.
FAQs
Q: Why is it difficult to find an apartment in Los Angeles?
A: The difficulty in finding an apartment in Los Angeles is due to a combination of factors including high construction costs, low vacancy rates, and a decrease in new apartment builds.
Q: What is causing the decrease in new apartment builds in Los Angeles?
A: The decrease in new apartment builds is attributed to the high cost of construction, unpredictability of profits due to changing regulations, and the lack of investment from major backers.
Q: How does the federal policy affect the construction industry in California?
A: The federal policy, including higher tariffs and the crackdown on undocumented workers, has led to rising prices in construction materials and equipment, and a reduction in the international workforce the industry depends on.
Q: What are the long-term consequences of the slowdown in housing construction in Los Angeles County?
A: The long-term consequences include an older, more strained housing stock and a deep shortfall in affordable options, leading to a severe housing crisis.
