Flogged tenants whose rents have risen by double digits could see some relief in the form of small rent increases over the next two years.
But what lies ahead is unclear as economic uncertainties cloud the outlook, says a senior forecaster at the University of Southern California.
Inflation, rising interest rates and changing migration patterns make it difficult to predict the future, according to USC’s Casden Multifamily Forecast in the Casden Report.
The report, released Thursday, November 10, forecasts smaller rent increases and higher vacancy rates through the summer of 2024. That’s good news for tenants, who have seen rents for vacant apartments rise by up to 18% over the past year and a half.
According to the forecast, residential rents will grow at only 2.4% annually over the next two years in Los Angeles County, 3-4% in Orange County and 5-7% in the Inland Empire.
“There will not be seventeen percent rental growth year after year. That’s not possible,” said Richard Green, director of the USC Lusk Center for Real Estate.
“The reason we’re forecasting the slowdown is because we’ve had serious churn, particularly from LA County,” he said. “It took some of the pressure off. Vacancies are rising a little, but not so much that rents will fall.”
Specifically, the prognosis stated:
Los Angeles District Rents for newly vacant units will increase 2.4% annually through the summer of 2024 to an average of $2,289 per month. That’s down from an 8% pace of growth earlier in the year, according to CoStar, which tracks housing trends. The vacancy rate will increase from 3.6% this year to 4.57% in 2024.
Orange County Rents will rise 3.1% next summer and rise another 3.9% in 2024 to $2,781 per month. This contrasts with 17% rent increases at the beginning of the year. Orange County job vacancies will also increase slightly, reaching 4.36% by the end of 2024. That’s up from 3.03% last summer.
domestic empire Rents — which were up 13.3% in early 2022 — will rise 7.7% through next summer, and then rise another 7.1% the following year to $2,230 a month. Riverside and San Bernardino counties, on the other hand, will see Fewer job openings as remote work draws more people to the area seeking cheaper rent and more space. USC forecast the domestic vacancy rate to fall to 3.73% in 2024, down from 4.26% last summer.
Still, economists say the economic uncertainty is clouding their ability to predict what will happen to the rental market.
“You would expect emigration to ultimately lead to more vacancies. So it’s really a migration story,” Green said. “So what we strive to say in the report is that all of this changes as migration changes.”
Another thing that could upend USC’s forecast is “a serious recession,” triggered by the Federal Reserve raising interest rates at a rate not seen since the Reagan administration.
Of course, if “we see a lot of layoffs, then that all changes,” Green said. “People are moving back in with their parents or they are doubling down and that could then lead to more vacancies and that could lead to weaker rents. … That, to me, is the great unknown out there.”
The USC forecast reflects the nationwide outlook.
“We’re beginning to see a slowdown in rental growth,” Caitlin Walter, vice president for research at the National Multifamily Housing Council, said at a conference in Atlanta last month. “So, (rent growth) is still at high levels, but it’s starting to slow down.”
Walter estimates that there is a shortage of 2.4 to 4.8 million apartments nationwide. Though more than 700,000 homes were under construction last year, supply chain issues are delaying construction, Walter said.
“If all of your units don’t have a refrigerator, you can’t get that certificate of habitability,” she said. “So all of this impacts our ability to actually get units to market.”
Meanwhile, renters across the country are reporting that a combination of inflation and rising rents are making them feel financially strained, according to Realtor.com’s latest Tenant and Landlord Survey.
The typical US renter pays $160 more per month when renewing a lease and $300 more when starting a new lease, the July survey found. Three-quarters of renter households say they are saving less each month than a year ago, and 59% of renters say they are postponing their dream of buying a home.
Despite higher rents, US landlords – and especially large landlords – are feeling pressure from rising utility costs, the survey showed. Three quarters of landlords said they had faced increased taxes and maintenance costs in the past year.
High Desert to see the greatest hikes
Despite economic uncertainties, USC ventured forecasts for 31 Southern California submarkets, including 21 in Los Angeles, Orange, Riverside and San Bernardino counties.
In the four-county region, rents are expected to rise fastest in the High Desert. This includes “outlying” San Bernardino County, a sprawling area stretching north from the San Bernardino city limits to Victorville and west to Twentynine Palms. The average rent for a vacant apartment there is projected to rise 17% to $1,543 per month by the summer of 2024.
Gains of 12% are forecast in the Palmdale-Lancaster-Santa Clarita region, western Riverside County, and the cities of Anaheim and Santa Ana.
At the other end of the spectrum, tiny hikes are forecast for much of Los Angeles and neighboring cities.
Inglewood’s rent is only set to rise 1% over the next two years, with downtown LA, Koreatown and the Mid City area forecast to increase 2%. Growth of just 3% is expected for a section stretching from Hollywood to Studio City, via the Hollywood sign and Mulholland Drive.
In Long Beach and South Bay, average rent is projected to increase by $100 to $1,940 per month by 2024, a 5% increase. Rents in the San Gabriel Valley will increase by 10%, averaging $2,580 per month in Pasadena and $2,081 per month in San Gabriel Valley cities to the east.
Beverly Hills and the coastal cities of LA County will retain their position as the highest renting areas in the region. Rents there are expected to average $3,258 per month in 2024, up 5% from $3,105 last summer.
While rents in the Inland Empire are the cheapest in the region, USC notes that they are rising rapidly as job growth outpaces housing construction.
For example, the percentage of Inland Empire households rent-burdened — or those paying more than 30% of their income on rent — was 55% in 2020, 1 percentage point above Orange County’s share and 1 point below LA County’s share.
“The high number of people paying more than 30% of their income in rent could result in the Inland Empire becoming Los Angeles and Orange counties,” the USC report said. “On the other hand, only a significant increase in new construction will help.”
Rental forecasts for each country for the third quarter of 2024
- Los Angeles County: $2,289, up 4.7%
- Orange County: $2,781, up 7.1%
- Inland Empire: $2,230, up 12.7%
Submarket forecasts for 2024
- Outside of San Bernardino: $1,543, up 17.0%
- West Riverside County: $2,313, up 12.3%
- Palmdale-Lancaster-Santa Clarita: $2,345, up 12.2%
- Anaheim – Santa Ana: $2,516, up 12.2%
- Redlands-Fontana: $1,881, up 11.3%
- Pasadena: $2,580, up 9.6%
- San Gabriel: $2,081, up 9.6%
- North Orange County, $2,467, up 9.4%
- South and Southeast Los Angeles: $1,913, 8.9%
- Palm Springs Indian: $1,362, up 7.8%
- Irvine-Tustin Mission Viejo: $3,069, up 7.7%
- San Fernando Valley: $2,149, up 6.6%
- Orange County Coastal Municipalities: $3,032, up 6.1%
- Long Beach-South Bay: $1,940, up 5.5%
- Coastal LA County Communities-Beverly Hills: $3,258, up 4.9%
- Burbank-Glendale: $2,074, up 4.1%
- Hollywood-Studio City: $2,288, up 2.7%
- Koreatown-Mid City: $2,295, up 2.3%
- Chino-Rancho Cucamonga: $2,403, up 2.3%
- Downtown LA: $2,162, up 1.6%
- Inglewood: $1,669, up 1.3%