Los Angeles was already experiencing an affordability crisis before devastating wildfires burned down entire neighborhoods. The disaster makes it even worse.
The number of incoming calls at LA Estate Rentals, which manages and rents homes in some of the area’s most expensive neighborhoods, has risen to 500 a day, more than 10 times what it was before the fires, owner Michael Patrick said.
He recently arranged for a tenant to pay $35,000 a month for a home in Beverly Hills on a 12-month lease. After the fires, but before the deal closed, the owner raised the rent to $40,000.
“What’s happening in the real estate market is disgusting,” Patrick said by phone. “People are pushing prices. It has become a kind of auction of houses, a bidding war.”
The nation’s second-largest metropolitan area has long been one of the least affordable U.S. markets to buy or rent. Now pressure is mounting as the fires that killed at least 24 people also destroyed more than 12,000 buildings, including many homes. That creates a large new group of people up and down the income scale, who suddenly have nowhere to live.
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Only about 5% of apartments in Los Angeles were vacant before the fires, with an average rent of $2,299, real estate service CoStar Group Inc. reported. In the areas affected by the fires, the market was even tighter. The vacancy rate was 3.8% in Pasadena, near the Eaton fire, and 2.1% in West Los Angeles County, where the Palisades fire is burning.
Because evacuees are naturally looking for homes near their burned properties, competition is fiercest in already tight areas. Demand for furnished homes, which cost more, has soared as many potential renters lost all their belongings in the fires.
“There is so much demand,” said Aaron Kirman, CEO of Christie’s International Real Estate Southern California. “I have two rental contracts with twenty applications each.”
Zillow Group Inc. has removed hundreds of listings that appear to violate price gouging rules since the fires began, said Alex Lacter, a company representative. Zillow is exploring new processes to identify gouges, but for now is directing employees to investigate listings flagged by users.
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Listings for rental properties are popping up on the Internet, placed as bait by people claiming to represent properties, says Patrick of LA Estate Rentals. Callers are often told that the property has already been seized. Then they are offered a completely different house at a higher price.
At his own company, Patrick had 200 listings before the fires. Now he’s almost out of stock.
“There’s nothing good quality in the $10,000 to $20,000 range in Santa Monica or Brentwood,” he said.
The effect is possibly even more painful for people in less rare parts of the market. Many Angelenos at lower and middle income levels have lost their homes and most assets, and often lack deep savings accounts that they can tap to compete in an increasingly expensive housing market.
Prices typically rise after natural disasters, at least briefly, says Jay Lybik, CoStar’s national director of multifamily analytics. Two prominent examples: Hurricane Katrina in New Orleans in 2005 and Hurricane Harvey in Houston in 2017.
One big difference now, however, is that flooded homes in Gulf Coast areas can be repaired more easily than the homes in Los Angeles that burned to the ground and need to be completely rebuilt, Lybik said. In New Orleans, a large part of the population never returned after Katrina. In Houston, new construction costs less and faces fewer regulatory hurdles than in Southern California.
“The market is already very tight” in Los Angeles, Lybik said. “The inclusion of displaced households will have a greater impact on the overall market.”
That impact will unfold in a city that is already putting significant financial pressure on buyers and renters. According to the California Association of Realtors, only 15% of households could afford the area’s median-priced home of $827,000 in the third quarter. Buying a home at that price would require a minimum annual income of $207,600, nearly double the U.S. average, the association said.
It’s a similar story for renter households in Los Angeles. About 56% of them are considered rent-burdened, meaning they spend more than 30% of their income on shelter, according to Redfin Corp. Renters displaced by natural disasters often face more challenges moving because they may not have insurance and the thousands of dollars it will take to move. required to make deposits for a new rental agreement.
According to Stuart Paul, US economist at Bloomberg Economics, it is still early to see a measurable change in housing figures.
“Right now, it appears that the Westside’s upper-end landlords are experimenting with aggressive price increases,” he said.
He cited the example of a listing for a four-bedroom house in Santa Monica that went from $8,750 in November to $12,500 after the fires and then dropped to $9,950 on Tuesday.
California law prohibits increasing the price of consumer goods, including housing, by more than 10% following an emergency that Governor Gavin Newsom declared for the Los Angeles region last week. Violators of anti-gouging laws could face up to a year in jail and $10,000 in fines plus civil penalties.
“The California Department of Justice takes all reports of price gouging seriously and is working with our law enforcement partners to investigate all leads arising from the fire in Southern California,” a spokesperson for Attorney General Rob Bonta said in an email.
However, a law on the books is no guarantee of enforcement. Los Angeles passed an ordinance in 2019 restricting short-term rentals such as Airbnbs, but it is often ignored.
Homeowners with a mortgage are required to purchase insurance, even though their policies may not cover all the costs of rebuilding and replacing belongings as prices soar after the disaster. The
Amid the fierce competition, many owners of homes that burned in the Palisades fire are paying out of pocket to secure rent rather than wait for insurance payouts, Patrick said.
“Whoever pays the most – and has the cleanest deal – gets it,” he said.