Los Angeles is the second lowest housing affordability market in the U.S., according to research by JLL. That’s driving demand for multifamily across the region and brings a host of intriguing considerations for the CRE sector. Connect Media wanted to take a deeper dive into the numbers and asked JLL’s Peter Belisle, Southwest Market Director, to share his insights in our latest 3 CRE Q&A.

Q: How is LA home affordability impacting multifamily development in the CBD and suburbs?
A: LA is one of the least affordable markets in the country for potential homebuyers. Only 25% of residents can afford to buy a home based on current median prices and income. This means more people are renting. In fact, 54.3% of households in LA County are renters, one of the lowest in the nation, behind only San Francisco, and lower than the national average of 64%. Because of these factors, multifamily developers see an opportunity here. Development is occurring throughout the LA basin, in both the CBD and suburban markets. There is a tremendous amount of activity in Downtown LA given the area’s continued revitalization, and more than half of all new units are coming online there. Koreatown is also a hotbed of multifamily development and conversion activity. All transit corridors are seeing activity, as developers take advantage of Measure JJJ incentives, and as the city encourages more density in these nodes.

Q: Besides home affordability, what other factors are driving multifamily development in LA?
A: Generational preference for delaying household formation is a strong driver. Historically, starting a family was followed by the purchase of a home. Now, millennials have been putting off having families and renting much longer. Larger student debt obligations may also be challenging potential homebuyers, all of which contributes to more demand for rental housing. Cities where top talent is migrating are creating a housing crunch in places like San Francisco, causing systemic pressure on the housing supply and record-high pricing, driving migration to overflow markets were housing options are more affordable, like Los Angeles. While still highly unaffordable to buy a home, the rental supply offers young talent more options to choose from within the LA basin. The recent boom in content creation is attracting more talent to this growing industry base, further driving demand for rentals locally.

Q: What factors will alleviate the affordability housing issue in LA?
A: Build, build, build! Without new supply to meet demand, pricing will continue to rise. Proposition 10, if passed, will grant local authorities the ability to set rent control. In the short term, this could help increase affordability, but in the long-run, may dissuade developers from building, since artificially lower rents will erode margins and not keep up with rising development costs. Overall, cities must be active partners with investors and developers to accelerate the amount of new housing supply, as new supply will be the only thing that alleviates pricing pressure in the long run. Ultimately, LA will continue to grow, and we need to be able to support this growth for the long-term.

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