Southern California tenants, long burdened by steadily rising rents, may get a breather as apartment rates show signs of leveling off and vacancies increase.
While rents continue to go up, the pace of increases shrank during the first three months of the year, according to data from four top apartment trackers.
And that began before the full impact of the coronavirus outbreak hit the market. Some landlords and analysts say the pandemic will weaken the rental market further as tenants losing their incomes double-up with friends or family.
“Rents have already started to go down, and vacancies are very difficult to fill right now,” said Larry Rubenstein, who owns more than 300 apartments in 20 buildings in the San Gabriel Valley and on the West Side of Los Angeles. “Rents had already peaked before this (pandemic) started.”
Southern California’s average asking rents during the first quarter of 2020 barely budged from late 2019, with rents posting the smallest quarter-to-quarter gains in at least seven years.
Orange County, for example, posted its first quarter-to-quarter rent drop since the spring of 2010, with asking rent falling 73 cents to just under $2,095 a month in the January-to-March period, first-quarter rent figures from Reis Inc., CoStar, RealPage and Yardi Matrix show.
Los Angeles County had an increase of just $1.75 in the first quarter, rising to $2,157 a month. That’s the smallest one-quarter increase for L.A. since the spring of 2010 as well.
Average rents rose a mere $6 to $10 in Riverside and San Bernardino counties, respectively. That’s the smallest rent hike for Riverside County since the winter of 2013, and the third-smallest for San Bernardino County since the summer of 2013.
The average asking rent for Riverside County was $1,526 a month during the first quarter of the year, and San Bernardino‘s average was $1,557 a month, based on data from CoStar and Yardi Matrix.
A consolidation of Inland Empire rents by Reis and RealPage showed the region had an asking rent of $1,515 a month.
Rent outpaces income
Southern California apartment rates have increased for 37 straight quarters, or just over nine years, rising 40% to 49% from 2011 levels.
California’s median household incomes, by comparison, increased only about 39% during that same period.
In dollar terms, today’s rents are up about $500 a month from 2011 in the Inland Empire, $600 a month in Orange County and almost $700 a month in L.A. County.
The leveling off in average rents was most pronounced in Los Angeles and Orange counties.
For example, rents increased 2.5% in L.A. County from the year before and 2.9% in Orange County during the first quarter. That compares with an average annual increase of 4.4% in L.A. County during the previous decade and 3.8% in Orange County.
The Consumer Price Index for rent likewise showed a similar trend: Rent went up 4.4% in the year ending in March, the smallest increase in four years.
The average increase was 4% in Riverside County, 3.7% in San Bernardino County and 5.4% in indexes showing figures for the two counties combined.
Building boosts supply
New construction is boosting the supply of apartments in the region, slowing rent hikes as vacancies rise.
Developers completed about 14,300 new apartments in the four-county region last year, Yardi Matrix reported, and are expected to open nearly 13,000 more this year in L.A.-Orange County alone.
More than 38,600 apartments are under construction in the four counties, Yardi reported — 29,300 in L.A. County, 5,134 in O.C. and 4,177 in the Inland Empire.
“The new inventory is helping,” said Nicholas Dunlap, senior vice president for Avanath Capital Management, which owns about 10,000 affordable and workforce apartments in the U.S., about 2,000 of them in Southern California. “I think that’s going to cause growth in pricing to slow.”
The coronavirus outbreak will limit rent hikes further, landlords and analysts say.
The Harvard Joint Center for Housing Studies said in an April 14 report that early signs suggest another slowdown in demand is coming.
“A COVID-19 recession is likely to cool already slowing demand,” the Harvard report said.
With record-high unemployment, reduced incomes could suppress household formation, the report said. And lower household incomes could also lead to renters doubling-up with others.
“Economic uncertainty and social distancing directives may also make people uncertain about making a move right now,” the report said. “Depressed leasing activity … will make it more difficult for property owners to fill current vacancies.”
In addition, a recent poll shows most U.S. landlords probably won’t raise the rent for existing tenants.
Fifty-three percent of 1,000 industry professionals responding to a RealPage poll said they plan to keep rents flat when renewing leases. Nearly 28% said they would keep increases to less than 2%, while 17% said they will get what they can.
Lastly, data from CoStar for Orange County showed an abrupt decrease in daily asking rent from early March to early April, amounting to a drop of $50 per month for a 1,000 square-foot apartment.
Fred Wolf, who has 1,200 apartments in the San Fernando Valley and on the West Side, thinks rents won’t just level off but will go down.
“People can’t afford it. They were struggling before,” Wolf said. “When the demand isn’t there, and there are vacancies, the rents are going to go down.”