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A surge of new renters and steadily rising rents have made Southern California one of the least affordable regions in the nation for tenants, a new USC study found.
San Diego ranked as the second most unaffordable area for renters among the 50 largest metro areas in the country, just behind Washington, D.C., according to the report, released Tuesday, April 30.
The fourth and fifth most unaffordable regions
The Los Angeles-Orange County metro area ranked fourth most unaffordable, and the Inland Empire ranked fifth.
USC researchers developed a new methodology for determining rent affordability — comparing changes in incomes and rent from 2000 to 2016 for the top and bottom 25% of all renters.
“Incomes have not kept pace (with rent) at all,” said Dowell Myers, a professor of policy planning and demography at the University of Southern California’s Sol Price School of Public Policy. “Demand way outran the supply of rentals, so the prices were bid up, even for the (lowest cost) units.”
Among the findings:
- Fifty-four percent of all L.A.-Orange County renters are now paying rents in what had been the top bracket in 2000, an inflation-adjusted comparison shows. That occurred even though the number earning incomes in the top bracket increased to 29% of renters, up from 25% in 2000.
- The number of tenants paying rent in the bottom-priced bracket fell from 25% of renters to 11% in 2016.
In other words, rents at what had been the cheapest one-fourth of the housing market rose faster than inflation, resulting in way fewer apartments affordable to the area’s poorest households, which remained virtually unchanged over the 16-year period.
“Over half the renters are forced to pay top rents,” Myers said. “It’s a national trend, but you see how L.A. (and Orange County) shoot way beyond the national average.”
Although rents and housing costs are much lower in the Inland Empire, rents there also have outpaced income growth, the report found.
For example, the number paying top-tier rents doubled to 55% of all renters in Riverside and San Bernardino counties, while half as many tenants – 12% — are paying the cheapest rents.
Myers called the Inland Empire result “a little surprising.”
“We’re all one big market, and you can’t escape high costs anywhere in the region,” he said.
Why has the number of affordable apartments decreased so much?
Demographics, Myers said. The renter population has surged, but apartment construction has failed to keep up.
As millennials aged, more moved out of their parents’ homes and began renting. Homeownership rates also plunged during the housing crash of 2008 as more “frustrated homeowners” lost their homes and became renters again.
“It’s not from immigration,” Myers said. “It’s just more people growing up.”
Meanwhile, construction has been stymied because of a lack of financing and a labor shortage, meaning developers “don’t have the capacity to build as fast as they could.” Even if they had that capacity, developers still face local opposition by existing residents, making it difficult to get cities to approve new projects.
“It’s a pressure cooker,” Myers said. “Ever since the 1990s recession, we have been under-building.”
That pressure has been behind state legislation like Senate Bill 50, which seeks to force cities to approve more homebuilding near jobs and transit lines.
An annual UCLA quality-of-life survey of 1,406 residents released last week also found rising housing costs to be the single biggest factor undermining satisfaction with life in Los Angeles County.
The USC report, which was published in the U.S. Department of Housing and Urban Development’s research journal, “Cityscape,” found rents shifting upward nationwide this century.
Thirty-nine percent of U.S. renters were paying rents in 2016 that formerly were in the top 25% bracket, while the share paying rent in the bottom bracket declined to 17% from 25% in 2000.
“On the income side, very little change has occurred,” the report said.
Other metro areas with the least affordable rents include Virginia Beach, New Orleans, Miami, Denver, Houston and Sacramento.
Myers said the change in Sacramento “has been shocking” to local residents. Rentals at the bottom of the market “evaporated,” he said.
The nation’s most affordable cities include Atlanta, Salt Lake City, Las Vegas and Phoenix, the study found.
The results for Washington, D.C., also were significant because people hadn’t recognized before that rent affordability is a problem there, Myers said.
“Amazon went there (to build its second headquarters) thinking it’s cheaper than Seattle, and that doesn’t appear to be the case,” he said. “And they’re driving up demand even more.”
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