"After blowing past all records in 2005, sales of apartment properties may be headed for a bit of a breather,” notes Mark Obrinsky, chief economist for the National Multi Housing Council, a group that represents apartment owners, developers, managers and financiers. “This may reflect the widely predicted cooling of the condo market in some parts of the country, hence some ebbing of the condo conversion demand. However, with the demand for apartment residences still climbing, there is good reason to expect apartment transactions to remain strong by historical standards.”
According to the statistics, 25 percent of the Los Angeles apartment sales during 2005 were sold for condominium conversion. That figure rises to 60 percent in San Diego.
Renters comprise approximately 34 million households in the U.S. reports Harvard University’s Joint Center for Housing Studies in a report titled “America’s Rental Housing.”
The study notes that renters are a diverse economic group. Nearly 20 percent of renters earn median incomes exceeding $60,000, but opt to rent for reasons that include maintaining a flexible lifestyle, easy access to amenities and shorter commutes.
"Demand is increasing for apartments because people say house prices are too high, and with interest rates going up, the affordability of home buying is less achievable," said Rachel Drew, a research analyst with the Center for Housing Studies.
At the other end of the scale, 20 percent of renters earn less than $10,000 annually. Nearly 2.4 million (57 percent) seniors pay more than 30 percent of their income to rent, while 1.4 million (34 percent) pay more than 50 percent of their income to rent.
"Because rental production has been low and replacement of existing units is not good, the supply is not expanding,” share Drew. “So higher demand raises the price."
The supply of rental housing in the country has fallen, with an estimated 2.3 million rental units, or 6 percent of the overall inventory, demolished or otherwise permanently eliminated. The Harvard study concludes that two million low-cost rental units were razed or withdrawn from the market between 1993 and 2002. Part of this can be attributed after a 10-year slide of renters that started in 1986. The Harvard report notes that the U.S. is losing approximately 200,000 rental units each year because of demolition, according to the center.
The Low-Income Housing Tax Credit program and other programs supply about 100,000 new units of affordable rental housing each year, but that is not enough to compensate for the overall decline.
Another issue is that many newly constructed units are larger high-end units that provide more amenities than many renters want or afford. As an example, only 35 percent of units built in 1984 had two or more bathrooms, compared with 57 percent of all units built in 2004.
In Los Angeles County, in the near future, the demand for apartments is expected to grow because of the addition of 45,000 to 60,000 new jobs, notes the Casden Forecast. Los Angeles County leads the nation in multifamily development, with 10,900 new apartments under construction at the end of 2005. Constrained by available land, these projects average 57 units each. Downtown Los Angeles accounted for one-third of all apartments completed in the county in 2005. Occupancy rates downtown – now at 98.2 percent – are the highest in the county and will continue to be tight.
The area around Ontario Airport and includes Rancho Cucamonga. Southwest Riverside County, including Temecula, Murrieta and Wildomar, is the market leader in new construction with 3,000 units under way.
Apartment projects in Orange County average 270 units. There has been no new apartment construction in Newport Beach since 2002.
"The Hollywood submarket's makeover in Hancock Park, Los Feliz, Silver Lake and Park La Brea should keep apartment demand strong this year,” surmises Conway. “The South Bay submarket is on a steady path to recovery, boosted by federal spending and accelerated growth in global trade.”
For information on Southern California investment properties there is a great website at www.SoCalInvestmentRealEstate.com.