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Southern California rents are likely to remain flat, study says

Rents are predicted to remain largely flat for Southern California's market through 2012, according to a forecast by USC's Lusk Center for Real Estate.

April 07, 2011|By Alejandro Lazo, Los Angeles Times

Southern California's apartment dwellers probably won't face big rent increases any time soon, but the steep declines seen in recent years are beginning to ebb as the economy improves, a new study says.

Rents are predicted to remain largely flat for Southern California's market through 2012, according to a forecast by USC's Lusk Center for Real Estate. Rents changed little across Southern California in 2010 — ranging from a 1% increase in the Inland Empire to a 0.2% decline in San Diego County.

From landlords' perspective, the region continues to lag behind the rest of the nation, where overall rents increased 2.3% last year. But that might change if California's economy continues to pick up. Nearly 100,000 net new jobs were added in the Golden State in February, and that kind of pace could help strengthen the rental market.

"The economic improvement in the last couple months could definitely lead to a faster recovery than we are anticipating right now," said Tracey Seslen, a professor at the USC Lusk Center who co-wrote the study. "The jobs number for the last two months showed really nice growth."

Factors potentially keeping the lid on rents include decreased demand for rentals as people look to buy homes, lured by skyrocketing affordability. In addition, investors are increasing the supply of single-family homes for rent by purchasing foreclosures and converting them to rentals. High gasoline prices also could drive down rents in far-flung areas by encouraging employees to move closer to their jobs.

The rental study was based on rental data for apartment buildings of five units or more from the research firm MPF Research. It does not include rental data on single-family homes, which have been putting pressure on the traditional rental market since the housing bubble burst and foreclosures hit the market.

"Single-family homes that are being rented out compete with traditional multifamily product — high-rises or garden apartments," Seslen said. "That supply is very hard to calculate."

Mia Melle, president at RentToday.us, a company that manages rental homes for investors throughout Southern California, said that the rental market had been saturated with investor-owned properties and that prices of these homes continued to decline, particularly in low-income areas.

"A company or a hedge fund that just bought 100 houses, they have the ability to offer more affordable rents, which lowers the rental market as a whole," she said. "The bigger guys are not going to haggle. They just want to get them rented."

The economy continues to take its toll on the rental market, Melle said, with people who have experienced reduced hours, layoffs or furloughs struggling to make their rental payments.

"On the flip side, things are leasing very quickly for us," she said. "If it is priced right, it is leasing within days, meaning that there are a lot of tenants out there."

Southern California's rental market has been good to Adam Cohen, 28, the president of Inland Empire Recycling, a scrap metal yard.

Cohen has been renting a four-bedroom, 21/2-bathroom home in Rancho Cucamonga with a big backyard with a koi fishpond for the last three years with his wife, Selina, 28, three daughters and son. The family pays $1,750 a month, and Cohen said his landlords had not raised the rent on him much.

Although Cohen said he viewed renting positively, he hopes to become a homeowner this year.

"The housing market is in a great spot right now for buyers," he said. "I would like to get in while the getting is good."

Along with an improving economy, some other factors may work to increase rents in Southern California, according to USC's rental study. They include a squeeze on the supply of apartment buildings because construction of apartment buildings slowed during the real estate downturn.

Separately, data for the first three months of the year show that rents in Southern California have increased little compared with the rest of the nation, according to Reis Inc., a real estate information firm. Los Angeles rents rose 0.2% from a year earlier while the U.S. as a whole increased 1.9% from a year earlier, Reis said.

alejandro.lazo@latimes.com

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