Are luxury apartments sitting empty in LA?

In late November, a group of Angelenos took to Downtown streets on a multi-stop tour to protest new high-end apartment buildings.

“Shame!’ they yelled in front of the Griffin on Spring and 825 South Hill, where prices for one-bedroom apartments start at $2,700.

The march took place on the heels of a report that claimed a number of residential buildings in Downtown LA were largely vacant. “This is what speculation looks like in practice: empty luxury towers while thousands live in desperate poverty on the streets below,” the authors of the report wrote.

There’s truth to that statement: Thousands of housing units in Los Angeles are vacant on any given day, while thousands of Angelenos with no place to live camp out on the streets. But the report was later taken offline after methodology was disputed and it was revealed that the analysis relied heavily on outdated information. The findings, however, had already been widely shared. The sentiment behind the report clearly resonated with Angelenos who see a disconnect between the expensive housing that’s being built across LA and the affordable housing that the region desperately needs.

“We actually need to be building housing at all levels, and because we aren’t, that’s why there’s such a spotlight on luxury housing,” says Gary Painter, director of the Sol Price Center for Social Innovation at USC. “In reality, we’re not building that much.”

Fancy buildings in Downtown fill slowly compared to affordable housing developments. There are no shortage of instances where 2,300 applicants have signed up for a 66-unit affordable complex in Hollywood, or 3,000 people have signed up for 140 low-income units in West Adams. There wasn’t a line out the door for the Griffin on Spring.

Is LA over-producing luxury units, and are they sitting vacant? Here, a breakdown of the whole vacancy issue, how it’s measured, and why it keeps coming up as Los Angeles struggles to overcome its housing and homelessness crisis.

How many apartments are vacant in LA right now?

Vacancy data is often distilled down to what’s known as the vacancy rate. The rate can signal whether an area has too many empty apartments or too few, and that affects rental prices.

Having a decent number of vacant homes is a fairly reliable sign that the demand for housing isn’t “significantly outpacing” the amount of housing that’s available, according to Shane Phillips, of UCLA’s Lewis Center for Regional Policy Studies.

Phillips says academic research has found that vacancy rates below 5 percent—what experts call a “natural” vacancy rate—lead to more rapid growth in rental prices. (That natural rate varies city by city.)

So what is LA’s vacancy rate? The answer depends on the source.

Right now, according to real estate data tracker CoStar, the apartment vacancy rate in the city of LA is 5.1 percent, or 18,255 vacant units of the 357,153 market-rate units that CoStar tracks to make its estimates. But 2018 census data show that the city’s vacancy rate for all housing types is more like 8 percent, or 120,400 homes, Phillips says.

It’s difficult to pin down a “healthy” vacancy rate that fits all cities, says CoStar managing analyst Stephen Basham.

What might be better to pay attention to, Phillips says, is the fact that LA “consistently ranks among the places with the lowest vacancy rates, regardless of methodology.” Among major U.S. cities, only New York’s vacancy rate is lower than LA’s, according to CoStar.

In other words, it’s common for cities to have vacant units, but in LA right now, it seems to be a landlord’s market with more competition for the relatively few available homes.

‘Tight vacancies are the primary reason apartments are so expensive’

Fewer vacancies often translate to limited options for renters, which means more competition—and higher prices—for the units that are available, according to Basham.

“Tight vacancies are the primary reason apartments are so expensive here,” he says.

Unfortunately, in LA, the inverse is not true, Basham says. When the vacancy rate goes up and more units are available, rents don’t usually go down—they just rise at a slower pace.

One exception is in situations where “an extreme amount of new construction hits in a short amount of time,” such as in Downtown LA, he says. There, due to the incredible amount of units that became available at once, vacancies are now up around 10 percent and rents are down 1 percent.

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What about Downtown LA?

LA’s vacancy rate also varies by neighborhood, and in Downtown LA, it cracked double-digits, climbing to 14 percent in early 2019.

It jumped up between July 2018 and March 2019, when Basham says 3,500 new apartments—all of them were market-rate or “luxury”—came online. That’s an “intense” number of any kind of unit to open in an eight-month span, he says.

By late 2019, the rate was more like 10 percent, and CoStar expects it to get back down to about 7.5 percent by late 2020 as the buildings lease up. From Basham’s point of view, there have been “record levels of filling empty space” in Downtown.

Do building owners intentionally keep their units vacant?

Tenant advocates argue that by building upscale apartments and condos with price points that are not affordable to local residents, developers aren’t just ignoring lower income residents. They’re placing bets that wealthier residents will eventually come—at the expense of less affluent residents who need homes now.

But apartment owners contend they have no financial incentive to keep units vacant, and in fact lose money doing so, as their mortgage, property taxes, and insurance all need to be paid whether or not the units are rented.

“There is no way an owner would want to leave units vacant for extended time periods,” says Daniel Yukelson, executive director of the Apartment Association of Greater Los Angeles. “That just does not make good business sense.”

But with units that are for sale, it might make sense for an owner to hold onto a unit and wait for prices to rise to make a bigger profit, says UCLA’s Phillips. Still, he says, a condo is “an even better investment” if it is purchased and rented out instead of just sitting vacant.

If there are waitlists for affordable housing, why is the construction of “luxury” apartments so prolific?

This is a big problem that largely has to do with construction and land costs and developers’ ability to make returns on their investments. (That’s one of the reasons why there’s a push underway to start building public housing again).

Researchers have also pointed out that LA’s zoning regulations make it difficult—if not impossible—for developers to erect smaller buildings, like duplexes and triplexes, that would be cheaper to build and thus command lower rents.

Regardless, USC’s Painter says the fact that so much of what is built is “luxury” makes this type of housing an easy scapegoat. But the solution isn’t building fewer market-rate units, he says. It’s building more housing for people at all income levels.

“We actually haven’t green-lit that many new homes compared to demand,” he says.

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It’s not easy figuring out whether homes are sitting empty

First, there’s the question of what even constitutes a vacant unit. Is a unit that’s been rented but not yet moved into vacant? Is a unit that is an Airbnb vacant? Part of knowing whether a unit is really vacant sometimes requires finding out why it’s empty.

If the end goal is to sniff out real estate speculators, that adds yet another layer of difficulty. It’s “very very hard” to prove that someone intends to leave a unit vacant, says Michael Lens, associate professor of urban planning and public policy at the UCLA Luskin School of Public Affairs. That intentionality aspect is important as the city considers whether to tax property owners whose units sit vacant.

Planners say that even if the city devised a rubric to figure out if and why a single unit was or wasn’t vacant, it would be an enormous undertaking to then apply that individually to each of the city’s roughly 1.4 million occupied housing units—about 880,000 of which are rentals.

City planners, tenant advocates, academics, and housing experts all agree that having good, recent data about vacancy is important, but getting that information is also tricky.

City planners used to rely on Department of Water and Power data to track vacancies across the city. DWP used its water and power meters to determine when a unit was vacant: If the meter was idling for three months or turned off, a residence was considered vacant. But the utility switched to a new system in 2013 that can no longer be used to track vacancies.

The city looked into a number of alternatives for vacancy information and determined that census data from the American Communities Survey was the next best source. But it’s not perfect. A 2017 report from the city’s planning department acknowledged that timeliness was an issue, “as the ACS represents a five-year average for a time period two years earlier.”

According to the city’s report about the best vacancy-measuring data, the ACS’s definition of vacancy is whether or not someone was living in a home when a Census Bureau representative came by to interview them. (Exceptions are made for people who were “temporarily absent” on interview day.)

Critics say the city needs better data

It’s that timing that most bothers critics. The fact that the data isn’t updated annually likely means that the numbers aren’t giving the best picture of a neighborhood’s actual vacancy, says Larry Gross, executive director of the Coalition for Economic Survival.

Lens emphasizes that while the ACS is a great resource, it’s merely a sample of households and housing units.

“If a city wanted to know every vacant unit in its jurisdiction, the ACS is not even going to try to do that,” Lens said. He does concede, however, that acquiring reliable, timely data is challenging.

The big issue

Vacancy data is important, but a lot of the talk around vacancy and ways to penalize it are a distraction from the solutions proven to help people afford rental costs: building more housing and providing rental subsidies and tenant protections, says Lens.

The Los Angeles Tenants Union takes that argument a big step farther. It advocates for a decommodification of housing, which its members say is the most effective way to produce housing that residents—especially unhoused, poor, and working class people—need.

Because housing production is driven by profit, the supply tilts toward wealthier residents, says tenants union member Walt Senterfitt.

“There has always been a housing crisis for the poor and working class,” he says.

‘Empty homes penalty’

One of the reasons vacancy is the talk of the town right now is because Los Angeles City Councilmember Mike Bonin is pursuing putting a vacancy tax—also called the “empty homes penalty”—on the November 2020 ballot.

One of Bonin’s goals is to gather information on how many owners are keeping units vacant intentionally as investments. That would close another gap in the vacancy data available to the city currently—information on whether units that are vacant are being kept vacant on purpose or are empty for another reason.

Bonin’s proposal is still in the early stages, so it’s not totally clear how it would pan out yet, but Oakland, Vancouver, and Washington D.C. impose vacancy taxes and could be models for LA. Each city takes its own approach to implementing the tax. Vancouver taxes most homes that are empty or unrented for half the year or more, and uses the funds generated by the tax to pay for affordable housing projects. (It has generated nearly $40 million since launching in 2016.)

Some housing experts say a vacancy tax could be helpful but aren’t fully sold.

Taxing empty homes “can have some positive outcomes for people who are struggling the most if we use the money that the tax would raise in an appropriate way,” Lens told Boston-based radio station WBUR. But because it doesn’t hit the root causes of the housing inequality that causes unaffordability and homelessness, don’t expect a cure-all, Lens said.

“The vacancy problem I see in LA is too few units” being sought after by too many people, Lens tells Curbed, though he does say the problem varies by income. Finding an apartment isn’t so tough if you have the means to pay a lot for it.

Plus, he says a tax on empty units might not generate significant funds for affordable housing coffers because “we aren’t going to find a tremendous amount of vacancy to tax.”

— Curbed contributor Jessica Flores and Curbed LA editor Jenna Chandler contributed to this report.