Today’s high home prices and limited single family residential (SFR) construction have driven a majority of Millennial and Generation (Gen) Z populations to rent. As a result, much of the nation’s share of new housing is concentrated in multi-family units, especially in California.
Downtown Los Angeles leads the nation as the top neighborhood for multi-family units with 10,100 units completed since 2017 according to a RentCafe analysis of Census data. Also with high numbers of multi-family units completed are:
- 3,500 units completed in downtown San Jose;
- 3,400 units completed in Hollywood; and
- 2,700 units completed in East village, San Diego.
Within Los Angeles’s neighborhoods alone, since 2017, the highest number of multi-family units built were:
- 2,400 units in Koreatown;
- 2,100 units in Westlake;
- 1,300 unites in Westchester;
- 981 units in Sawtelle; and
- 803 units in Mid-Wilshire.
For an area known for its city-life amenities and entertainment industries, it makes sense why downtown L.A. has seen the highest increase in new multi-family units in the last five years. About 39% of the total number of new multi-family units delivered in the last five years in Los Angeles are in downtown L.A. The popularity of this location just goes to show that denser, higher housing near to all the amenities and industries that downtown L.A. has to offer is high in demand.
Renters give cost of living the most weight when deciding what area to move to, even above crime and safety. However, even with the high number of additions, Downtown L.A. isn’t exactly the cheapest neighborhood to live in for low-to-mid tier income earners. The price to rent in downtown L.A. can range from an average $1,700 to a massive $28,500, according to RentCafe. Knowing that renters are cost-burdened in the U.S., especially renters of color, who is exactly filling up all these new units?
The answer may be roommates.
Denser living for renters, more opportunities for builders
If cost-burdened renters want to keep living in areas like downtown L.A., the number of roommates per unit needs to increase to cover the costs of renting. Low-to-mid income Millennial and Gen Z renters now need to live with multiple roommates to afford the costs of renting in downtown L.A., and anywhere else in the state for that matter.
As a result, the average household size in L.A. County is high by necessity. Here, the average household size is 3.0 persons according to the U.S. Census Bureau. To put it into perspective, when compared to the state of California as a whole, L.A. county’s average household size is much larger. The average household size in California amounts to 2.75 persons.
Multiple roommates and even inter-generational housing have become commonplace now to cover the costs of renting. With today’s stagnant wages and rapidly rising rents, this trend doesn’t look to be easing up anytime soon.
On the other side of the coin, builders are getting the opportunity to invest in taller, denser housing and get better returns on investment (ROI’s) than with costly new SFR construction.
Agents can expect to see more multi-family construction in the future thanks to the growing government incentives for multi-family construction. AB2345, which was passed in September 2020, gives developers more incentives to build low-to-mid tier housing units. The bill also permits local governments to grant additional waivers for projects located within half a mile of transit, which reduces costs under the new density bonus law requirements.
Transit-oriented development is becoming a popular way to add inventory and combat the housing shortage. Developments near public transit reduce the cost per unit, making it easier and quicker to build and reducing the need for onerous parking requirements.
Slowly, but surely California legislators are trying to ease the housing crisis by providing new development opportunities for builders and more low-to-mid tier housing all around.
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