Multifamily construction has been a boon to L.A.’s economy

In its latest Supply and Demand Outlook for the Los Angeles Apartment Market, the real estate brokerage and research firm Marcus & Millichap stated that L.A. “is in the midst of the largest housing boom in decades, as developers rush to complete projects in the county.”

Last year, 10,200 rental apartments came online in Los Angeles, and another 8,500 could be added in 2015.

That construction activity should be good news for Los Angeles’ overall economy, if history repeats itself. Research commissioned by the National Multifamily Housing Council and the National Apartment Association finds that apartment construction, operations, and resident spending contributed $63.1 billion and supported more than 534,900 jobs in the Greater Los Angeles area in 2013.

Those findings were released earlier this week by the Apartment Association of Greater Los Angeles, which represents 20,000 building owners and managers in Southern California.

In 2013, Los Angeles had 3,039,590 million people—23% of its population—living in 1,272,968 occupied rental homes and apartments. Thirty eight percent of those apartments are one-person households.

In 2013, Los Angeles had 3,039,590 million people—23% of its population—living in 1,272,968 occupied rental homes and apartments. Thirty eight percent of those apartments are one-person households. Apartment residents wielded $23.4 billion in spending power.

The study reports that two-thirds of the building permits issued in Los Angeles County were for multifamily. And it breaks down the economic contribution of apartment construction ($5 billion, or more than any other metro area in the country), operations ($11 billion), and rents ($47.1 billion). 

Marcus & Millichap, though, raises some red flags about whether this economic bounty will continue. It notes that anticipated upward pressure on interest rates could temper investors’ enthusiasm for the apartment sector, further dissipating the buyer pool.

The research firm also notes that recent weakness in absorptions and rent growth—the latter of which increased by 4.4% in 2014 and is expected to rise by 5.2% this year to an average of $1,842 per month—might also make investors think twice about projects still on the drawing board.