USC Price School of Public Policy

Research Center Spotlight: 2016 Lusk forecast valuable resource for planners

Sunrise over Los Angeles

Released annually by USC’s Lusk Center for Real Estate, the Casden Real Estate Economics Forecast examines housing market trends in Southern California and make projections for housing stock, rents, and vacancies. Analyzing a range of socioeconomic, economic, and financial factors, the report’s findings are often a benchmark for professionals in urban policy, investment, and housing. Produced by Price Professor and Lusk Center Interim Director Raphael Bostic, the 2016 report received extensive media coverage and has enabled informed policy decisions on housing, construction, investment, and regulation.

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Among the 2016 forecast’s key findings was that the steadily high demand for apartments across Southern California and in the housing market nationally may be beginning to wane. The authors found signs that the approximately 5.5 million families forced into the rental market during the great recession, who otherwise would been homeowners, are now in a better position to access credit markets and secure mortgages. Likewise, because of the jump in demand for rentals over the past decade, investors have responded with record housing development. Last year, the construction of new 5+ unit buildings reached 385,000 nationally—its highest level since 1987. With even more construction permits secured for next year, the modest increase in vacancy rates—a signal of slowing demand and/or increased supply—may persist nationally. However, this may not be the case in Southern California.

California housing supply has traditionally been constricted by strict regulatory controls. Still, over the last two years, the authors found that California added one new residential building for every four new residents. While the housing supply is increasing, the authors found that it has only tempered falling vacancy rates and done little to alleviate soaring rents. Beyond housing supply, the authors identify three other factors that lead them to forecast a tight rental market in Southern California:

  • Mortgage credit markets are loosening, but are still tighter than their long-term average.
  • Household formation is increasing, but only after years of stagnation due largely to the lack of job opportunities and reduced incomes.
  • Millennials will remain in the rental market in the short-term; delaying marriage, children, and homeownership.

In Southern California in 2015, Orange County had the highest average rent at $1,577/month, while San Diego County experienced the fastest rent growth rate at 5.9% from 2014 to 2015, and Los Angeles County’s vacancy rate was the lowest at 4.2%. Despite these astounding figures, the authors do not project a loosening of Southern California’s rental market. Instead, the authors forecast that rents will continue to rise over the next two years as a result of income growth and strong demand.

The full report is available online at: https://lusk.usc.edu/casden/multifamily/report