Searching for apartments in the LA area – there are 558 listings on zillow in westside LA under 2k$. Many are within blocks of each other, lots are units in the same building. With so much inventory, shouldn’t market forces cause some landlord to lower the rent? Does the economic theory of supply and demand not apply for the housing market?
In: Economics
Rent can only go as low as the owner’s mortgage. To go lower, it first has to go through foreclosure (or sold at a loss) and get resold at a reduced priced. Then relisted. That process takes a while.
Well it isn’t like nobody is taking those 558 listings. People must be ready to occupy/take it at price offered.
Unless you see them being vacant for a considerable duration where nobody will pay the asking price, then we might talk about the economic forces and all that.
Ultimately 558 listings in an LA area is a pretty small number of listings considering how large the city is.
A few factors can go in to this.
1) The listings are being taken. You’re just seeing the turnover. Ie apartments are getting rented but then new ones become available. Prices won’t drop in that situation because ultimately people are still taking the rates listed. There will always be some % in turnover.
2) Prices can be “sticky” Ie landlords are reluctant to lower rent even if it means losing money in the short term. They think eh someone will rent it in just another few weeks.
Eventually yes the market catches up, but it can be slow to do so.
“Does the economic theory of supply and demand not apply for the housing market?”
[Not any more.](https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent)
Basically, a lot of modern services can turn a competitive market into a cartel. The software can inform landlords that there are enough potential tenants, all they need to do is hold out.
Some investment companies might accept a vacancy for a while as they can write off the loss at tax time. As long as their portfolio as a whole is making money all is good. I would bet most of the units in the same building are the same investment company, if they lower the rent on one then that might make the higher priced units a harder sell.
LA’s c[urrent vacancy rate for housing is 4.9%](https://www.costar.com/article/1677684742/los-angeles-apartment-vacancy-flatlines-in-late-2023), which is on the low side. It’s generally considered that 5-8% is the sweet spot for vacancy rates, so as many people as possible are housed, but so that there’s enough slack in the market that people are still able to move.
5% of the total housing stock in LA (1.4 million units) is 70,000. That might sound like a huge number of empty apartments, but in a city the size of LA, it’s really not all. Thousands, perhaps tens of thousands of other people – both in LA and outside – are competing for the same 558 listings you found on Zillow. This is the seemingly paradoxical current state of most larger cities in America – facing high rents fueled by a substantial housing shortage while tens of thousands of units are on the market.
“Shouldn’t competition drive it down?”
It does, to an extent. The Austin, TX area has had one of the biggest decreases in median rent in the nation lately, and coincidentally it also has some of the highest rates of new housing construction in the nation.
With LA specifically though, as others have pointed out, a few hundred units is really nothing in a metro area that large.
[removed]
The amount of listings/places to live is low compared to the people looking for places to live.
No, because there isn’t a lot of competition, since many apartments are owned by corporate owners.
So a corporate owner with 1,000 apartments prefers to charge $200 more ($200,000) and have 5 apartments be empty than charge $200 less and have those 5 extra rents which would be only like $10,000.
Latest Answers