Buyers and Renters Alike Struggle to Secure Housing in a Market that Has Gone Absolutely Out of Control
Sight unseen applications, lightning-fast acceptances, personal letters extolling how much you love the property, and offers well above listing price have long been the norm in the Southern California real estate scene. Still, these days we’re not just talking about homebuyers. Even renters are now needing to navigate this high-speed, high-stress market where landlords gleefully reap the rewards and the rest of us put up with it in hopes of eventually finding a tolerable place to live.
Well-appointed units are being rented out for monthly rates well above the already astronomical asking prices, and less livable apartments aren’t that much cheaper. The average rental price has risen 16% in the last year alone.
Why Is This Happening?
The primary driver of the current rental price inflation is the overall lack of available units. There isn’t enough housing for everyone who needs it or even for everyone who can pay for it. So renters are all scrambling to secure available units.
With a vacancy rate of only 2 percent, everyone is fighting over the same few apartments. It’s no longer unusual for a potential renter to reach out to hundreds of potential landlords before finding a place to rent- nor for landlords to receive hundreds of inquiries about the same unit within days.
Now Only the Rich Can Rent
Rental prices all over have risen beyond belief. However, the problem is particularly pronounced in coastal California and even more so inside the city of Los Angeles. Rents of several thousand dollars a month leave many priced out of the rental market altogether. Even people who can pay have their rental applications rejected because someone else offered to pay more.
Another factor to consider is the “30 percent rule” that is extremely outdated due to rising rents and stagnant wages, but landlords still live and die by. If you’re not familiar, this rule states that the monthly cost of your housing expenses should total no more than 30 percent of your monthly income.
Left at that, it may just be another quaint but out-of-touch budgetary recommendation, but it doesn’t stop there. Landlords want to make sure that they’re renting to someone who will pay their rent on time, in full, and without complaint, so they don’t have to go through any pesky eviction procedures.
In order to ensure them their best chance at this happening, many landlords require potential tenants to prove that they have a regular monthly income that’s at least three times as much as the rental price of the unit. Most people cannot do this.
So landlords also offer the option to have a cosigner on your loan who will be responsible for paying your rent should you ever default. Of course, their income needs to be at least three times the cost of rent too. A lot of people cannot do this either.
Even for people who happen to have parents or other family members who would be willing to cosign, the chances are good that their income won’t be enough to qualify either, especially if they live in a different part of the country.
As Prices Rise, Quality Falls
We tend to buy into the idea that you get what you pay for. So if something costs more, that means it must be better. That is not the case in the Los Angeles housing market. As rental costs soar ever skyward, people moving into the city are surprised to discover that their rentals don’t come with basic amenities they’ve come to expect in other places, like laundry hookups, air conditioning, or even a refrigerator.
It definitely feels like LA landlords are testing the boundaries- trying to see just how much they can charge and how little they can offer. And the longer this housing shortage goes on, the more power they’ll have to wield in what for them is a game, and for everyone else means the difference between being housed or unhoused.
Speaking to the Los Angeles Times, Daniel Tenenbaum of Pacific Crest Real Estate, described setting rent prices as both a science and an art. He went on to say:
“Vacancy and pricing all comes down to supply and demand. So the last unit that was at, let’s say, $1,700 got leased up in three days, where it used to be two to three weeks. … On the next vacancy, we will increase it a little bit and see how that goes.”
While there are a few laws protecting existing tenants from unreasonable rent hikes in certain locations, there are no such protections for new renters. And that’s how we get where we are today. With rents going up and up and up and showing no sign of ever coming back down again.
LA Could Be an Early Harbinger
Even if you live far from Los Angeles, you might want to take note of this phenomenon. We’re sure to see this pattern play out elsewhere in the coming years if nothing is done to stop it.
As housing becomes more difficult and expensive to buy, more people remain renters for longer. This puts a strain on the available rental supply, which tends to be relatively slow-growing, leading to price inflation, quality degradation, and lack of available housing at any price that we’re now seeing play out in Los Angeles—coming soon to a city near you.
It’s not difficult to see how these factors result in increased homelessness. It may be a few months of living in your car as you struggle to find a rental that will accept your application. Or, it could be long-term homelessness that’s unlikely to be resolved until more affordable housing enters the market. Despite how much homeowner’s associations love to shout that their unhoused neighbors are devaluing their properties, this has yet to be the case. Housing prices and homelessness are increasing in tandem.