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LA housing construction surging—for now

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Permit data shows a development slump may be on the way

The Los Angeles skyline against a blue sky.
At the end of June, nearly 28,000 new units were under construction in Los Angeles County, with most expected to wrap up by the end of 2021.

Builders in Los Angeles County are on track to complete nearly 10,000 new homes before the end of the year, according to a new report from real estate company Marcus and Millichap.

The 9,400 units of housing on the way in the second half of 2019 is higher than the number of units constructed in all of 2018—or 2017.

Most economists agree that building new housing is a key part of addressing steep rental prices and home costs throughout the state. Gov. Gavin Newsom pledged last year to oversee construction of 3.5 million new homes by 2025. If distributed according to population, that would leave LA County responsible for contributing nearly 900,000 residences to that total.

Projects have been wrapping up at a relatively high rate over the last year, though not high enough to meet the pace proposed by Newsom. From June 2018 to June 2019, 10,680 units opened. That was double the roughly 5,300 completed in the 12 months prior.

New U.S. Census data also suggests this miniature boom won’t last.

In the first six months of 2019, developers in the Los Angeles metropolitan area (Los Angeles and Orange counties) received permits to build 13,015 homes. If that pace keeps up, the region will permit nearly 3,500 fewer homes in 2019 than during the prior year—a drop of 12 percent.

The local dip in new permits is part of a statewide decline in new housing development brought on partly by rising construction costs.

Still, at the end of June, nearly 28,000 new units were under construction in Los Angeles County, with most expected to wrap up by the end of 2021.

That’s a lot of new homes on the way to an area suffering from the effects of a profound shortage of affordable housing. But the authors of the Marcus and Millichap report argue that the region’s extremely low vacancy rate could prevent those new units from making a significant impact on the local cost of housing.

With just 3.6 percent of rental homes sitting empty (and thus ready for a tenant), there’s room in the market for new options; the report’s authors write that an “influx” of newly built apartments is unlikely to create “oversupply concerns” for investors.

That means that even a small surge in local development may not move the needle much for those struggling to afford rent.

According to a report released earlier this year by the Federal Home Loan Mortgage Corporation, the gap between wages and rents in Los Angeles is the third-widest of any metropolitan area in the country.