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O.C. Rent May Go Up in 2011

Just last week, apartment data tracker RealFacts reported that Orange County apartments are 6.7% cheaper than they were a year ago, hitting an eight-year low—a result of the rising vacancy rates caused by the ongoing real estate crisis.

However, apartment developers and landlords were recently warned that the opposite could happen as early as next year, as demand for low-cost housing rises and the low supply could trigger price hikes of up to 10% a year.

At a meeting of the National Association of Home Builders (NAHB) last week, experts revealed that 30- to 40-something professionals—a demographic dubbed “Generation Y”—are expected to seek housing in the coming years. And in upscale areas like O.C., they are most likely to opt for apartments and condominiums.

However, tight finances and strict lending are slowing down construction projects for rental housing. An average complex takes approximately two to three years, so even with a financing boost, new projects may not be completed until early 2012.

This means that the number of tenants can exceed that of available rental units by the middle of 2011. According to the NAHB report, this shortage can increase steadily until 2014 and may increase rents by 8% to 10% from 2011 to 2012.

Housing executive Michael Costa said his company, MacFarlane Costa Housing Partners, has completed only four housing projects in the past year—a drastic drop compared to the 30 to 35 they did prior to the housing crash.

NAHB economist David Crowe said that while vacancy rates may be high, economic recovery may bring unprecedented demand and the industry may not be able to cope. He added that adequate financing is an important first step to reviving the building industry.