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California is building fewer homes. The state could get even more expensive.
Last year across California, developers began to decrease the number of residential building projects, further adding to the rise in rents as supply shortages worsened. Higher labor and material costs are making it harder to turn a profit.
The high cost of borrowing is the number one reason. Rising interest rates are challenging the pockets of borrowers wishing to purchase homes, as well as for contractors to build them.
“More than anything it is debt costs,” said Ryan Patap, an analyst for real estate research firm CoStar.
Preliminary data from the US. Census Bureau show a 12% decline nationwide in building permits for new homes, up 5% from a year ago.
Adding more challenges to the real estate market, L.A. developers are having to contend with the the dreaded “mansion” tax.” Since the passage of Measure ULA—the citywide property transfer tax that took effect last year—apartment developers and real estate brokers are finding it harder to earn a reasonable profit.
The tax is 5.5% of all properties that sell for more than $5 million, and can be applied to gas stations, strip malls, apartment buildings or actual mansions. The tax was imposed to help fund affordable housing in L.A.
The Federal Reserve plans to cut interest rates later this year, which may help more projects make sense financially, as could rising rents.
Land sellers could also drop their asking prices to adjust for rising developer costs, including ULA in Los Angeles.
The Picture in Inglewood
Here is the current outlook for buyers and renters:
- About 21.0% of Inglewood renters live in single-family homes.
- Overall, 43.6% of Inglewood housing units are single-family—the 15th smallest share among all small U.S. cities.
- Average apartment rent is around $2,500 on the high end
- Homes in Inglewood sold for 3.4% less than they did a year ago. The median home price was $705,999 according to Rockethomes.com
