California renters’ hopes that a wave of apartment construction could bring more rent relief could fade in early 2024.
Multifamily housing construction projects have plunged to their lowest level in 10 years, my trusty spreadsheet discovered after taking a look at the Census Bureau’s quarterly California building permit templates, followed by the St. Louis Fed. Multi-family housing consists primarily of apartments and some condos or townhouses.
California permits approved for multifamily housing in the first quarter fell 22% from the start of 2023, to 8,972 units in the first three months of this year. This is the slowest quarter for multifamily plans since the start of 2014.
California developers cooled their construction plans as interest rates soared, the economy slowed and people no longer felt the pandemic-fueled need for larger living spaces.
And let’s not forget that California rents have stabilized as vacancies have increased. No amount of legislation or nudges will incentivize developers to build when economic conditions aren’t nearly perfect.
Unfortunately, the slow start to the year stands in stark contrast to the previously rapid pace of multifamily housing construction in California.
First quarter authorizations were 32% below the 2021-23 pace. During these three years, 159,476 multi-family housing units were under construction. This is the largest construction effort since 2004-2006. Yes, 17 years old.
Relief for tenants
A new rental supply has helped ease the pain caused by steep pandemic-era rent hikes.
Rents in California fell at an annual rate of 1.4% in March 2024 after falling 0.8% for all of 2023, according to ApartmentList. Remember, rents statewide increased 11% in 2022 and 5.5% in 2021 as renters sought larger living spaces as the coronavirus rearranged life and the economy.
Let’s also consider empty rentals in California and the options they offer apartment seekers. During the first three months of 2024, vacancy rates averaged 5.2%, compared to 5% in 2023 and 4% in 2022, according to ApartmentList.
A little hope
California house hunters are faring a little better. Single-family home developers have increased their pace of construction to meet demand for owner-occupied properties.
Single-family home construction permits increased 26% in the first quarter to 14,215 units. But that was 7% below the 2021-23 pace. Over those three years, 182,883 homes were permitted, roughly unchanged from the previous three years.
Overall, permits issued in California totaled 23,187 units in the first quarter, up 2% from a year ago but down 19% from the 2021-2023 pace. During these three years, 342,359 permits were submitted, the best count since 2005-2007.
Jonathan Lansner is the Southern California News Group’s business columnist. He can be contacted at jlansner@scng.com
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