The housing affordability crisis in Los Angeles, already one of the least affordable markets in the US, has taken a dramatic turn for the worse following devastating wildfires that have destroyed thousands of homes. The fires, which have claimed at least 24 lives and burned over 12,000 structures, have left many residents without homes and fueled a surge in rental demand. This has led to an increase in rental prices, with some properties now reaching $40,000 per month—significantly higher than before the fires.
Patrick Michael, owner of LA Estate Rentals, which leases homes in upscale neighborhoods like Beverly Hills, reports a sharp increase in calls to his agency, with inquiries now reaching 500 a day, compared to just 50 before the fires. One of his recent clients paid $35,000 a month for a property in Beverly Hills, but after the fires, the owner raised the rent to $40,000, reflecting the growing demand and limited supply.
Rental Market in Crisis
The rental market in Los Angeles was already tight before the fires, with only about 5% of apartments vacant and a median rent of $2,299, according to CoStar Group Inc. However, in the areas hardest hit by the fires, such as Pasadena and western Los Angeles, the vacancy rates were even lower, hovering between 2.1% and 3.8%. As evacuees seek homes, the competition for available properties is fierce, especially in neighborhoods close to the burned areas.
Furnished properties, which tend to be more expensive, are in high demand as many evacuees have lost all their possessions in the flames. Aaron Kirman, CEO of Christie’s International Real Estate Southern California, reports that some rental properties are receiving up to 20 applications per listing, underscoring the intense competition.
The Rise of Price Gouging
While the demand surge has intensified competition, it has also created an environment ripe for price gouging. Rental prices have surged, and some landlords are taking advantage of the desperation by raising prices exorbitantly. Michael describes the situation as a “bidding war” for rental properties, and many individuals are being misled by fake listings. Zillow has removed hundreds of listings that appear to violate price-gouging rules, while real estate firms like Michael’s are struggling to keep up with demand.
Los Angeles Mayor Karen Bass has condemned price gouging and discussed the issue with district attorneys, stating that both the city and county are committed to investigating these practices. California law prohibits raising prices by more than 10% during emergencies, and violators can face penalties including imprisonment and fines.
Impact on Lower and Mid-Income Renters
The effects of the fires and the resulting price hikes are especially severe for lower and mid-income renters. Many residents who have lost their homes may not have the financial means to compete in the increasingly expensive rental market. According to Redfin, approximately 56% of renters in Los Angeles are considered rent-burdened, meaning they spend more than 30% of their income on housing. Displaced renters often struggle to relocate without the necessary savings or insurance coverage to afford deposits and new rent.
Jay Lybik, national director of multifamily analytics at CoStar, noted that while prices tend to spike after natural disasters, the situation in Los Angeles is compounded by the need for total rebuilding of burned homes, which is more expensive and time-consuming than rebuilding in other disaster-stricken areas like New Orleans or Houston.
Government Efforts to Curb Price Gouging
Despite the legal protections against price gouging, enforcement remains a challenge. The California Department of Justice has pledged to investigate reports of price gouging, and state officials have warned that landlords found violating the law could face severe penalties. However, similar efforts to regulate short-term rentals in the past have faced enforcement difficulties.
The law also requires homeowners with mortgages to carry insurance, but the coverage often does not fully cover the cost of rebuilding or replacing possessions. The state’s FAIR Plan, which insures homeowners in high-risk areas, has a $3 million limit on residential coverage, which may not be enough for many property owners whose homes have been destroyed.
The Strain on the Market
As rental prices skyrocket, many homeowners whose properties were destroyed are opting to pay out of pocket for temporary rentals instead of waiting for insurance payouts, further driving up competition for available housing. With few affordable options in the market, it remains to be seen how Los Angeles residents, especially those in lower-income brackets, will cope with the aftermath of the fires and the housing crisis that has followed.
In the face of these pressures, Los Angeles is grappling with a housing crisis that has reached a new level of urgency, with price gouging and limited availability pushing many residents into a difficult and expensive housing market.
Related topics:
