LA Renters: How Do They Do It?

Photo courtesy of channone, flickr

Photo courtesy of channone, flickr

A scroll through rental sites like Trulia or Apartments.com brings up a one-bedroom/one bath in Westwood at $3,100 per month and a studio in Miracle Mile at $2,295. Conventional financial advice is to spend no more than 30 percent of gross monthly income on rent, which translated into real terms, would mean an income of $97,160 to comfortably afford average rent in Los Angeles, according to a December 2014 analysis by Zillow.

The rental situation results from a perfect storm of single-digit vacancies, median home prices at $554,100 per Zillow, and wages that have not caught up with the rental market. Rental pricing is a function of supply demand. If few units are available, rents will rise to what the market will bear, barring rent control or other regulations.

Just how significant is the problem? A nationwide study by the Joint Center for Housing Studies at Harvard University concluded that close to 60 percent of renters in the LA/OC metro area are “burdened,” meaning they spend more than 30% of their income on rent, leaving less in the pot for other expenses like food and healthcare, not to mention savings and disposable income, hurting the economy and dashing hopes to eventually become a home owner.

About a third of renters (32.8 percent) are “severely burdened,” meaning they spend more than half of their income for rent and utilities, a percentage that has increased by less than half a percent this year but still reflects a growing problem.

Although rent in San Francisco/Silicon Valley and New York outpace Los Angeles, the wage gap in Los Angeles is what makes rent affordability a troubling issue in the City of Angels. Nearly 91 percent of those earning $15,000 to $30,000 need to pay 70 percent of their monthly paychecks towards housing. Among moderate earners ($30,000 to $45,000), 78 percent pay rents that exceed the 30 percent threshold. Slightly over one in four who earn over $45,000 are rent-burdened.

A study by the NYU Furman Center and Capital One concluded that L.A. has the biggest gap between rising rents and falling wages of any U.S. city. The average paycheck in the L.A. Metro area has decreased by 4 percent between 2006 and 2013, while rents increased by 11 percent.

As the price of single-family home ownership continues to increase, rising 5.2 percent during 2015, median incomes in L.A. increased by only 2.9 percent, just above the national average. Housing forecasts indicate that many Angelenos are destined to be lifelong renters, which, you’ve got it, increases demand and decreases supply. With a nod to your high school economics teachers, that means rent is bound to continue escalating.

The increasing rental market is bringing construction but vacancy rates have dropped to just 2.7 percent in hot neighborhoods like downtown. Over half of the new 5,200 rentals listed online are located downtown. Keeping in line with Mayor Garcetti’s ambitious proposal to increase units by 17,000 by 2017, more than 15,000 units are under construction all over LA.

Despite the increase in units, a third quarter rental market report by Marcus & Millichap concludes that rents are continuing to spiral upward. Rents throughout the city were up by 7.8 percent and are expected to continue the climb by more than double the rate of inflation.

Even in the (818), where renters traded in shorter commutes for affordable housing, rents are up by 7.4 percent, the highest rent increase in the Northeast Valley, where rents are up 15.1 percent. The increase in rents in the Valley may be in part due to the cooldown in construction, though 3,100 units are expected to be added to the market next year.

Central L.A. rents have outpaced the rest of the city in rents, increasing an average of 6.2 percent, with the biggest increases in Hollywood where average rents rose by 7.2 percent to $2,209 per month. Mid-Wilshire rents increased by 6.4 percent.

Downtown, rents increased by 5.3 percent, likely because of an upswing in development. Of the 2,800 units built in Central L.A., 1,900 were located downtown. The vacancy rate downtown hovers around 3.7 percent, lower than in other areas and about ten percent of apartment units offer concessions to attract renters to sign a lease.

Rents on the Westside are up 6.8 percent with Palms/Mar Vista seeing an upsurge of 10.5 percent. Average rents in Santa Monica and Marina Del Rey are now over $3,000 per month, higher than Brentwood/Westwood/Beverly Hills, where the average rent is now $2,891 per month, up by 9.3 percent since last year. About half of the new units built on the Westside are in and around Santa Monica. In 2016, over 1,000 new rental units are expected to be built, more than 700 in Santa Monica and Marina Del Rey.

Is Los Angeles destined to remain unaffordable to low- to moderate-income residents? The mayor’s ambitious proposal includes step increases of units to 150,000 units by 2025. He also hopes to increase affordable housing units close to mass transit.

Any solution to the affordable housing problem must address wages and enticements to developers and investors to develop units that are within the budget for more Angelenos, as well as zoning restrictions to curb the building of expensive housing.

This piece was originally published by CityWatchLA.com

Beth Cone Kramer is a Los Angeles-based writer and CityWatch contributor. Prepped for CityWatch by Linda Abrams.