San Francisco garners headlines for its astronomical apartment rents, but Los Angeles apartments are actually the least affordable in the West, according to a new report.
The Lincoln Residential Services survey shows that L.A. County households spent an average of 22.8 percent of their income on rent last year, compared with the 19.7 percent apartment renters paid in San Francisco.
In straight dollar terms, Bay Area apartments are still more expensive than those in Los Angeles. The average monthly rent paid for a San Francisco apartment was $1,137 last year, compared with the Los Angeles average of $897. The average rent was even higher in Silicon Valley, at $1,141 a month.
But L.A.-area apartments are the least affordable in the eight Western states because the median annual incomes in San Francisco and Silicon Valley are considerably higher than the median income in Los Angeles.
L.A.'s $46,900 median income is $14,400 below San Francisco's and $20,500 below Silicon Valley's median.
So apartment dwellers in the Bay Area markets spend a smaller percentage of their income on rent.
Julie Ritchie, director of relocation for Coldwell Banker, said Bay Area residents earn higher incomes because they tend to be employed at high-paying technology companies, while more Angelenos tend to work at lower-paying service industry jobs.
"A lot of people live (in Los Angeles) who don't earn the wage to live here," Ritchie said. "But they are willing to live beyond their means because it's so attractive the lifestyle, the weather and the convenience" of being close to the beaches, mountains and other recreational areas.
San Francisco remains one of the hottest rental markets in the country. Rents in the Silicon Valley, where vacancy rates averaged 2.6 percent in 1996, jumped 18 percent this year, according to the Lincoln study.
By comparison, Los Angeles is one of the West's softest rental markets, with an average vacancy rate of 6.2 percent last year, down from 6.8 percent in 1995. L.A. landlords increased rents an average of 4 percent in 1996, according to the survey.
Several local apartment brokers disputed Lincoln's vacancy rate, insisting that the L.A. apartment vacancy rate was 12 to 15 percent in 1996, but has since fallen to the 10-to-12 percent range.
Al Somekh, vice president of business development at Lincoln, said the L.A. apartment market is poised to profit from the Bay Area's tight rental market.
"The Bay Area is turning anti-growth at a time when there aren't many units left there," he said. "Southern California is continuing to add jobs and attract more people."
The L.A. market hasn't firmed enough for landlords to aggressively raise rents, but concessions paid utilities or discounts on move-in fees are becoming less common, said Katherine Bergh, senior vice president at Grubb & Ellis Co.'s apartment sales division.
L.A's apartment market has pockets of slack and tightness. Sherman Oaks, Toluca Lake, Studio City and West L.A. are some of the tighter markets, while East L.A., Panorama City and Sepulveda still have high vacancies, Bergh said.
The market has also been attracting considerable interest from investors in recent months. L.A. had the second-highest rise in average sales price per unit in the West last year, going up almost 50 percent to $41,126, according to the Lincoln study.
"A lot of institutional investors have designated L.A. as the place to put their money," said Marc Renard, director of apartment investment sales at Cushman and Wakefield Inc.
"There's an abundance of buyers and a lack of quality product out there," Bergh said, adding that she recently has seen many buildings sell for more than their list price.
It's still more profitable for investors to buy an existing apartment building than to build a new one, Bergh said.
The Lincoln report showed that L.A. had the fewest multi-family building permits issued for 1996 among metro areas in the West.
The apartment building permits issued last year will result in just a 0.27 percent gain in L.A.'s inventory of apartment units. Las Vegas led the list, with permits issued there last year increasing inventory by 10.3 percent.
The Lincoln survey examined the rental and housing markets last year in the 17 largest metropolitan areas in the Western United States. It is the first year Lincoln published its findings, which in the prior five years had only been released to its clients, Somekh said.
The Foster City-based residential property management and development company is not a disinterested observer it has a portfolio of more than 40,000 apartment units in the eight Western states.
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