As developers navigate uncertain financial conditions and cooling tenant demand, Los Angeles County saw the start of only about 500 market-rate multifamily units in the second quarter of 2024. This slowdown in construction could lead to a tighter rental market in the years ahead.
Over the past year, only around 6,300 units were under construction in L.A. County—the lowest level of starts on a four-quarter basis since 2013. Notable projects like Sagewind Ranch, a 172-unit development in Lancaster by Foremost Pacific Group, are exceptions. These units range from 1,000 to 1,850 square feet and include two to four-bedroom options.
Despite significant developments like Sagewind Ranch, the total number of units under construction in L.A. has decreased from just over 27,000 in early 2023 to 22,000 units. This trend suggests that construction activity may continue to decline in the near term.
The slowdown is largely attributed to rising debt costs, which have made it more challenging for developers to secure financing on favorable terms. Increased vacancies from last year and new transfer taxes, implemented in April 2023, have further complicated the situation. The new taxes impose an additional 4% levy on sales over $5 million and 5.5% on those over $10 million in Los Angeles.
Since over half of L.A. County’s multifamily units are within the city, these taxes could suppress long-term construction. Developers, typically involved in projects for short periods, must now factor these costs into their financial models.
If construction levels remain low, L.A. could face a shortage of new rental units by 2025, potentially shifting the balance of power back to landlords if the market begins to recover.
SOURCE: CoStar Analytics
