MW Los Angeles fires could push up rents across the city by 8% or more, expert warns

By Aarthi Swaminathan

Rents in L.A. were going down, but the wildfires could reverse that trend

With thousands of Los Angeles homeowners seeking refuge from the wrath of wildfires, the fallout from the destruction could include higher rent prices across the city, where more than half of residents are renters.

While the fires have struck areas where some homes are worth many millions of dollars, the potential rise in rents in Los Angeles could also spill over into other less pricey neighborhoods, worsening costs in an already expensive city.

"Doubling of growth or tripling of rent growth is absolutely possible," due to the lack of in housing supply in Los Angeles, Selma Hepp, chief economist at CoreLogic, told MarketWatch. She added that the availability of some rentals could spread by word of mouth as displaced homeowners seek shelter, which is not captured by real-estate models, so the increase in rent prices could be even higher.

There could also be certain landlords who seek to cash in on the opportunity, she added. There could be price gouging, especially for very desirable rentals, Hepp said.

"California is the most underhoused state in the nation," Jay Lybik, director of multifamily analytics at CoStar $(CSGP)$, a real-estate data provider, told MarketWatch, referring to the state's chronic housing shortage. The fires will "cause a major shock to the housing market" throughout Southern California, he said, as people scramble to find housing.

The Los Angeles fires have created an estimated $135 billion or more in damage, cost at least five people their lives and forced at least 180,000 people to evacuate.

After thousands of people were displaced when Hurricane Harvey hit Texas in 2017, many homeowners had to find short- or long-term rentals while their properties were being repaired or rebuilt. That pushed up rents in Houston by 4%, according to CoreLogic, and rents increased for at least a year afterward.

But the uptick in rents post-Harvey wasn't as substantial as it could have been, CoStar's Lybik said, because Houston had many available apartments to absorb the surge in demand. "That helped hold back from rents going crazy," Lybik said.

It's a different story in Los Angeles. With L.A. being more housing-starved than Houston, "we should see rents rising anywhere from two to three times the level we saw in Houston," Lybik said.

In other words, rents in L.A. could rise by 8% to 12%.

Fire damage typically takes longer to repair and rebuild than flood damage, Lybik noted, so demand for rentals around Los Angeles could stay elevated for longer than in the wake of Harvey.

As of the end of last year, Houston's vacancy rate, which refers to the share of rental units that are vacant or unoccupied, was 11.4%, according to Lybik. Nationally, it was around 8%. But in L.A., the vacancy rate was 5.1%, one of the lowest in the U.S., behind New York and Orange County, next door to Los Angeles County.

Los Angeles real-estate agent Scott Goshorn often helps people buy and sell luxury homes, but he's been getting inquiries from former clients about possible rental properties in the wake of the fires. He was looking for properties in Brentwood and Santa Monica, among other neighborhoods, where rentals can go for up to $25,000 a month, he said. Despite the price tag, "they're going to go so quick," he added.

The fires were burning down homes, restaurants and businesses at a furious pace, he said. "It's straight-up apocalyptic," Goshorn said.

The median rent this month in the Pacific Palisades part of Los Angeles was $10,000, according to Zumper, a rental-listings site. That figure included rentals with any number of bedrooms and in any type of property. That's 417% higher than the national average, the company said.

In Los Angeles County, 54% of residents are renters, the city said in a September 2024 report. And among that group, nearly 60% were cost-burdened, meaning they pay more than 30% of their household income on rent.

The Los Angeles metro area consistently ranks as one of the most expensive rental markets in the U.S. Median rent in Los Angeles as of Jan. 9 was about $3,000, according to Zumper. That's 52% higher than the national average.

The projected uptick in rents in the wake of the fires comes as Los Angeles tenants were starting to see some relief from pandemic-era rent increases. Rents for listings on Zumper's site had dropped 21% in January since last year, and Zillow $(ZG)$ found that median rents in the Los Angeles market have fallen slightly since January 2024.

The number of unhoused people in California grew in 2024 to an estimated 186,000 people living either in homeless shelters or on the street, according to an analysis by the nonprofit news outlet CalMatters.

-Aarthi Swaminathan

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January 09, 2025 20:44 ET (01:44 GMT)

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