In these unprecedented times, people are struggling to afford basic necessities like monthly rent and utilities. Property company Zillow reported that around 2.7 million adults in the United States found themselves moving back home and living with a parent or grandparent in March and April as the coronavirus pandemic spread around the country. According to the California Business, Consumer Services, and Housing Agency, nearly three million households in California may have trouble paying rent during the pandemic. This has been reflected in the asking prices for properties all across the state, which have begun to decrease considerably.
Los Angeles in particular is now seeing some of the steepest rent cuts in the country, as fewer people are able to afford rent and instead opting to move in with family to cut costs. This has led to a rise in the number vacant lots in the county, and for asking rental prices to similarly drop as a way for landlords to try to convince people to fill empty luxury units.
According to information from real estate company CoStar, asking rents for Los Angeles luxury apartments peaked at an all-time high of $2.51 per square foot in the first week of February. Between then and April, asking rents decreased by approximately two cents per square foot, ending the first quarter at $2.49 per square foot.
In downtown Los Angeles, a 566-square-foot, one-bedroom apartment at the luxury apartments Eighth and Grand would have cost at least $2,286 at the end of January, according to a recently written LA Times article. The article goes on to say that at the time of writing, the same size unit at the building was advertised for as low as $1,771. The Times also claims to have found another luxury building a few blocks away from Eighth and Grand where monthly rent for the cheapest 1,284-square-foot, three-bedroom unit has come down $385, to $3,870 per month.
Luxury apartments are graded in an A, B, C class system. Class A properties make up the highest quality buildings for the area, usually newer and with top amenities (think, spa, gym and maybe even a dog run). They’re the most expensive and usually have the lowest vacancy rates. Class B apartments are slightly older, may or may not be professionally managed, and may have some deferred maintenance issues. Class C apartments are typically more than 20 years old and located in the less popular areas of the city.
According to additional information from CoStar, the average asking price for Class A properties has dropped by 4.3 percent in Los Angeles County since the beginning of March. To a lesser extent, rents have dropped 2 percent in Class B apartments, and just 0.2 percent in Class C properties. CoStar warns that downtown Los Angeles, with more than 4,000 units currently under construction, will face the most pressure if demand for high-end units dries up. The site also notes that this decrease in asking prices marks the first time that apartment rents have declined significantly in the L.A. housing market since 2010, when the area was still suffering from the effects of the national recession.
Demand for high-end units is likely to dry up at the moment because there simply isn’t anything drawing renters to the areas. Luxury Class A apartments tend to offer a large variety of communal areas, but the pandemic has put a stop to those being open. This means that the temptation to splurge a little on an apartment for the extra amenities is no longer there. COVID has also prevented bars and restaurants from opening and has basically ended sporting events for the time being. People may be finding that the location of an apartment is currently less important than before, and for that reason may be considering moving to cheaper apartments to save money. Saving money is especially important in times when there is so much uncertainty in the air.
As the LA Times article points out, far more people are able to afford a $1,400 one-bedroom unit than can afford a $2,600 one, especially if they can’t actually benefit from any of the extra amenities at the moment. It’s a huge difference for not a lot extra.
Other than lowering rent, some landlords are trying to tempt people into luxury apartments with “offers.” Some landlords and property managers told real estate provider RealPage that they’re giving concessions such as a month of free rent to get units filled as concern over the economy grows. Others may be throwing a few utilities in with the rental price, where previously they probably wouldn’t have been.
CoStar suggests that although rents may be falling and the number of vacant apartments is rising at the moment, the pandemic won’t completely change Southern California’s severe housing shortage, and that because of this shortage, they expect to see a bounce-back after the economy recovers.
For now, though, it means that if you’re in a position to afford rent, you may be able to snag a luxury apartment at a lower price tag than normal.