Rents are rising again in Southern California and, to no one’s surprise, the effects of inflation dominate many of the conversations around the topic. A spike in borrowing rates, people are quick to note, not only prevents some renters from becoming homeowners, but drives up the cost of new construction altogether. That keeps vacancy rates low and prices high.
That’s accurate, as far as it goes. But it doesn’t come close to explaining what is happening in Southern California or around the state regarding the fate of renters.
What millions of Californians will be paying for over the next several years — in the form of steadily rising rents — is a housing crisis that has been decades in the making. It remains to be seen whether some of the first real attempts to deal with it, the result of legislation enacted over the past few years, can begin to relieve the crunch.
The state’s housing shortage is no secret. A recent report by Up For Growth, a Washington, D.C.-based pro-housing policy group with real-estate company backing, put California’s shortfall of needed housing at nearly 1 million units. A widely cited 2016 report issued by the global consulting firm McKinsey, meanwhile, suggested the state needed to build 3.5 million new units by 2025.
For decades, restrictive building policies meant that many California population centers continued to sprawl while construction was often dominated by single-family homes.
The USC Lusk Center for Real Estate, in its 2022 Casden analysis, forecasts rising rents through 2024 in all five Southern California markets: Los Angeles, Orange County, San Diego, Ventura County and the Inland Empire. And while Lusk Director Richard Green’s report noted that any forecast can be affected by rapidly changing factors such as inflation, interest rates and people leaving to find a more affordable place to live, the state’s severe housing shortage is the first place to look for reasons behind the rise in rents.
“The Los Angeles Metropolitan Area consistently builds half the housing or less of Houston and Dallas, despite the fact that it is more than 70% more populous than either Texas city,” Green wrote. “The absence of supply … will simultaneously and paradoxically mean that we will see little net migration, but continuing low vacancies in the years to come.”
For decades, restrictive building policies meant that many California population centers, including L.A., continued to sprawl while construction was often dominated by single-family homes, rather than infill housing or cost-affordable projects. Those areas’ populations were growing rapidly as well. Result: a supply-and-demand nightmare for renters, as homebuying costs sailed out of sight and they scrambled to find places where they could afford to live.
That scramble affects lower income families the most. In the early months of COVID’s advance on California, poorer L.A. communities experienced higher rates of disease, in part because families in such neighborhoods often live in crowded conditions — the only way they can afford housing in the area.
The scarcity of available units means prices will keep going up. As the national housing market cooled during the summer, 27 of the nation’s 35 largest markets finally showed a decline in rent prices. Three of the exceptions? Los Angeles, San Diego and Orange County, which showed the highest month-over-month increase in the country.
According to census data analyzed by the PPIC, California added 3.2 times more people than housing units between 2010 and 2020.
The USC report included graphic projections of rent increases in the Southern California markets. By 2024, it said, L.A. County should see rents rise by 4.7% to an average of $2,289 per month. Orange County is projected to be at $2,781, while the Inland Empire is expected to shoot up by 12.7% to $2,230 a month — the result of so many people moving there from Los Angeles in an effort to find affordable housing.
According to census data analyzed by the Public Policy Institute of California, the state added 3.2 times more people than housing units between 2010 and 2020. “There are now 2.93 Californians for every occupied housing unit, behind only Utah (3.09) and Hawaii (2.93), and far above the average of all other states (2.53),” the report’s authors wrote.
A number of recent bills signed by Gov. Gavin Newsom may help get the state on track, and two of the most important — passed this year — essentially had to be brokered among the interest groups that aligned behind one or the other.
AB 2011, authored by Assemblymember Buffy Wicks (D-Oakland), allows builders to significantly streamline the process to construct housing on certain commercial land if a specified percentage of the homes are affordable. SB 6, authored by State Sen. Anna Caballero (D-Fresno), lets developers build market-rate housing on commercial property, though they’d still be bound by the local approval process. There’s no mandate for affordable housing in that bill, but in both cases, vacant or underused buildings can more easily be converted into residential living space.
Union representatives pushed hard to require a “skilled and trained” workforce on those jobs, with a certain percentage of workers having completed a state-approved apprenticeship program. Those on the development side argued there simply weren’t enough of those workers available. In the end, such a workforce is required on SB 6 but not AB 2011 – but both bills guarantee union-scale wages and sped-up construction processes.
The laws don’t take effect until July, but their potential to unlock housing construction is significant. An analysis of AB 2011 by Urban Footprint, which interprets data for local governments and planners, suggested that this bill alone could produce 1.6 million to 2.4 million new housing units, as many as 400,000 of which would fall into the affordable category.
Together with SB 9 and SB 10, signed by Newsom last year with the intent of allowing duplexes on family lots and streamlining smaller developments in transit-rich areas, California may finally be lurching forward in its long-delayed construction of more housing, more quickly. For renters trying to maintain a quality of life in the state, that movement can’t come too soon.
