clock menu more-arrow no yes mobile

Filed under:

Will a recession fix LA’s housing crisis?

New, 159 comments

Homelessness advocates say the city’s booming economy has left some residents behind

UCLA Anderson Forecast director Jerry Nickelsburg says it’s not clear yet how the next recession will affect LA rents and housing prices.

A new economic forecast from the UCLA Anderson School of Management provides a bleak outlook for California investors and business interests.

The state’s economy is slowing down, say the report’s authors, and the likelihood of a national economic decline is on the rise.

“There are some different dynamics happening now that are creating a higher probability of a recession,” says Jerry Nickelsburg, director of the Anderson Forecast.

That could bring job loss, wage stagnation, and plenty of other negative effects. But could it also aid those affected by the region’s housing crisis?

Homeless advocates say economic downturns can yield surprisingly positive results when it comes to housing the city’s most vulnerable residents.

“It’s a little counterintuitive, but when the economy does well, our homeless count goes up,” says Elise Buik, president of the United Way of Greater Los Angeles.

Earlier this week, county officials revealed the results of an annual census of homeless residents, showing the number of unhoused Los Angeles residents has ballooned 12 percent since a year earlier—even as the local economy boomed.

In 2013, as the U.S. economy began its recovery from the Great Recession, 35,524 homeless residents were counted in Los Angeles County (minus Glendale, Long Beach, and Pasadena). That number now stands at 56,257.

“The economy has benefitted people who are employed—particularly those who are higher wage earners,” Los Angeles Homeless Services Authority President Peter Lynn said Tuesday, while presenting the results of the latest homeless count.

“When you look back at the Great Recession, the vacancy rate in the housing market was over 10 percent,” he told reporters. “I was running the Section 8 [housing voucher] program for the city’s housing authority, and my landlord briefing was full every week.”

Even Mayor Eric Garcetti, a steadfast champion of the city’s economic successes, acknowledged earlier this year that the severity of LA’s homelessness crisis is largely dependent on the regional economy.

“People say when there’s an economic downturn, ironically, that’s when it gets better, because rents go flatter” Garcetti told reporters in March. “An economic uptick is when there’s more homelessness.”

Nickelsburg says he hasn’t researched the effects of recessions on homelessness, but acknowledges that housing markets typically weaken during periods of economic decline.

That means prospective homebuyers could have an easier time finding affordable options in the event of a recession—assuming their wages and savings are unaffected by the downturn.

“A recession tends to be a buyer’s market,” says Nickelsburg. “So if you’re a qualified buyer, that might be a good time to buy.”

The California Association of Realtors releases a quarterly housing affordability index, which measures the accessibility of homeownership to first-time buyers. By this metric, just 45 percent of households in LA County now earn enough to purchase a starter home at a price 15 percent below the countywide median.

In 2012, on the other hand, prices dropped low enough that 68 percent of households could afford a starter home. At the same time, home mortgages became far more difficult to obtain, which explains why buyers didn’t flood the market during the recession years.

Nickelsburg cautions against making big assumptions about how the next recession will affect rents and housing prices, since it’s not known yet what will cause the next downturn.

“One of the things that typically would trigger a recession is the overbuilding of housing, and that’s something that we really haven’t seen,” he says. “We would expect some impact on the housing market, but housing is not overbuilt. I think where you would see the impact would be on the building of new homes, but it would be less so on existing homes.”

Regardless of whether the next recession makes housing more affordable, says United Way homeless initiatives director Chris Ko, it’s clear the recent bull market hasn’t benefitted LA’s poorest residents.

“There are more ways than one to grow and prosper,” he told reporters Tuesday. “And I think the one we have chosen socially right now leaves people behind.”