Report raises concerns about Southern California real estate development
Dolores Quintana
The University of Southern California Rusk Real Estate Center predicts an upward trend in multifamily rents across Southern California over the next two years, suggesting potential hurdles to commercial real estate financing. .
The 2023 USC Casden Real Estate Economic Forecast analyzes market conditions and provides a two-year forecast for multifamily rents and vacancies. This year’s forecast also examines the impact of high interest rates, migration patterns and financing on the future of housing in Southern California.
Moussa Diop, associate professor of real estate at the University of Southern California’s Sol Price School of Public Policy and author of the forecast, expects rents to rise modestly in the short term. But the difficulty of refinancing loans at interest rates nearly double their original rates has raised concerns about impending commercial real estate debt maturities.
“Additional housing supply is critical to easing rent burdens, but this becomes nearly impossible if builders face difficulty financing projects or properties are near default,” Diop said. he explained. “This situation can lead to a loss scenario for both renters and landlords.”
Diop’s forecast cites the number of people leaving the state and California’s lack of affordable housing in the region as indicators of “areas that don’t meet livability standards.” 510,000 residents left the state between 2020 and 2022, suggesting an outflow larger than the population of Atlanta. New housing development is undermined by high interest rates, and operating costs inhibit owners’ ability to invest in further housing development.
“New supply will become less and less as the industry takes time to sort out financing. By the time momentum picks up in a few years, there will be even more damage. Vacancies will fall and rents will fall. In this way, we will lose even more residents to neighboring states. Southern California renters cannot afford to reduce production.” “We will bear the brunt of this situation and its impact will become clearer over time,” he added.
Los Angeles County is experiencing a severe housing shortage and is losing the most residents in the state, with a net loss of 146,500 residents from 2020 to 2022, more than the city of Fullerton, California. comparable in scale. High mortgage rates led to a 13% decline in multifamily permits in 2023. The USC report predicts average rent growth will slow by 2% annually over the next 24 months, reaching $2,306 per month by October 2025, and the vacancy rate will decline slightly to 4.5. %.
Major ULA funds efforts to increase affordable housing and combat homelessness, but USC predicts additional transfer taxes on properties over $5 million could have a negative impact on Los Angeles It has been suggested that there is. Buyers and developers are likely to increase costs for tenants through higher rents, or developers may choose not to build in Los Angeles, which could widen the disparity in new housing. There is.