The 2021 University of Southern California Casden Economics Forecast, an annual prediction of future rent and vacancy rates across five SoCal regions, reveals that a pandemic-driven exodus of renters from downtown could bring the highest rent increases to the suburbs over the next year. It could also lower the price of renting in the densest areas of Los Angeles.
The forecast report – the first since before Covid-19 reached the U.S. – notes that these projections could be temporary and traditional forecasting models cannot account for unprecedented rapid shifts in human behavior brought on by the pandemic.
Regardless, the marked change in lifestyle over the last 18 months has shifted a number of trends related to rents and vacancies. As a result, rent is projected to decrease 1.2 percent in Los Angeles’ Koreatown and increase 9.9 percent in the Rancho Cucamonga-San Bernardino submarket of the Inland Empire.
Of the five regions included in the annual forecast -- Los Angeles, Orange, San Diego and Ventura counties, and the Inland Empire -- Los Angeles County is the only one with any submarkets projected to have lower rents.
“The pandemic changed the behavior of millions. As of now, the farther one travels from the City of Los Angeles, the greater the potential for rent growth,” said co-author Richard Green, director of the USC Lusk Center for Real Estate, which produces the annual report. “The rise of remote working and the shuttering of restaurants and entertainment venues have made high-priced downtown living less appealing. The critical question is how many people will return to pre-Covid behaviors and when that will happen.”
Green, who co-authored the report with Evgeny Burinskiy, who holds a Ph.D. in Urban Planning and Development from the USC Sol Price School of Public Policy, emphasizes that forecasting during a time of extreme uncertainty is problematic. Typically, the Casden Forecast is a two-year projection of multifamily rents and vacancies in dozens of submarkets across five regions.
With no precedent for the current crisis, there is no way to estimate the level at which people will return to pre-Covid normalcy. As a result, this year’s forecast looks only one year forward and does so with a number of caveats. However, a number of pronounced trends were discovered and worthy of examination.
In addition to the recent shift in housing demand away from cities to previously less-desirable locations, a significant number of Southern California renters are leaving the region’s apartment market altogether. There are a number of factors – not all of them pandemic-driven – that are decreasing the renter population in the region.
For the first time since it became a state in 1850, California’s total population decreased in 2020. While this is partly due to Covid-19 deaths and pandemic-driven restrictions on international migration, both of which are presumably short-term, there are also a significant number of previous tenants who are leaving the region’s rental market. Some Californians – particularly those earning less than $50,000 – are moving to less expensive cities like Phoenix and Las Vegas. At the same time, mortgage rates are at their lowest levels since just after World War II and, as a result, owner-occupied housing was more attractive than renting a downtown apartment.
Meanwhile, for those who remain part of the renter population, the impact of various eviction moratoria during the pandemic has kept vacancy rates relatively stable. But thousands will owe back rent and eventually could face eviction. The U.S. Census Bureau estimates that 459,000 households in Los Angeles and Orange counties – eight percent of all households -- consider themselves “housing insecure.”
“Most households cannot repay many months of back rent and will find themselves in a dire situation. If even a small fraction of this massive number of households is evicted, which is a very real possibility, the upward push on vacancy rates will be substantial,” Green noted.
The 50-page report was produced by the USC Lusk Center for Real Estate using data provided by CoStar and the U.S. Census Bureau.
The complete 2021 USC Casden Real Estate Economics Forecast, which contains additional analysis of dozens of submarkets that comprise the five larger markets in Southern California, was presented to industry professionals on May 17, 2021. The full report is available to the public at https://lusk.usc.edu/forecast-report/2021-casden-spring-multifamily-forecast-report.
About the USC Lusk Center: The University of Southern California Lusk Center for Real Estate seeks to advance real estate knowledge, inform business practice, and address timely issues that affect the real estate industry, the urban economy, and public policy. The Lusk Center produces relevant and timely real estate research, supports educational programs for students and executives, and convenes professional forums that bring together academics, students, business executives, and community leaders. For more information, please visit www.usc.edu/lusk.