Rents in Southern California have been rising for years. The rise of apartment and house rental prices is pressuring many SC residents, becoming a national social issue. Why are these rents skyrocketing then?
Short Supply
According to the Federal Census, the vacancy rate in LA apartments is 2.7%, based on the record at the end of last year. Generally, if the rate is less than 5%, it is considered as a full occupancy of tenants meaning there is no empty room in the apartment.
The vacancy rate in Northern California’s San Jose is even lower (2.5%), and in big cities including San Francisco (3.5%), the rate is usually around less than 5%. The national vacancy rate in the U.S. had marked 11.1% in 2009 when the housing bubble was breaking, and the rate has dropped down to 7%, so other states are also experiencing the dropping of vacancy rate.
The reason why the demand for housing rental is increasing is that a lot of people who have left for sub-urban areas as a result of economic depression have now found jobs and are coming back to large cities, which decreases the vacancy rate. LA Koreatown, especially, is having many constructions of new apartments of the major development companies. Therefore, the rents of those apartments are priced very highly, which eventually raises the rents of other existing apartments.
Rise of House prices
As well as the rents, the house prices in Southern California are also skyrocketing, which makes it hard for first-time home buyers to buy a house.
Because these people can’t buy a house, they are trapped in apartments, which is another reason why rents are raising high. It is examined that during the past first quarter of the year, only 34% of SC residents were able to afford a middle-priced house ($465,280). Although the number has increased by 4% compared to the previous quarter, in reality, it is not easy to buy a house of that price in this large city. Especially in areas where many Koreans prefer to live at, the price is so high that one can’t even buy a two-bedroom condo.
In Koreatown, the opportunities to buy a two-bed condo with $400,000 are gradually decreasing. The prices of new two-bed condos are passing way over $500k and some are even over $600k.
Many young buyers in their 30s, who have relatively high incomes, are trying to buy a house; yet, since many of them can’t prepare the down payment, they are having a competition with existing tenants.
Slow Credit Recovery
When the housing bubble started, about 800,000 home owners in SC lost their houses as a result of distrainment or short sale. Among these people, some have recovered their credits and purchased houses again, but there are more people who still can’t get out of apartment rentals.
As long as these people stay in the apartments and remain houseless, it increases the demand of apartment rentals.
One Korean real estate agency said, “it will be hard for the rents to maintain so high, but it is expected that it will still continue to pressure many middle class tenants to pay their rents for several years”.
Original article available at http://www.koreadaily.com/news/read.asp?art_id=4375275
Translated by Audrey Joung
