New apartments taper off in L.A.

Demand is high, but building new rental units isn’t profitable, developers say.

- BY ROGER VINCENT

MYUNG J. CHUN Los Angeles Times APARTMENTS on Harold Way in Hollywood. Investors are reluctant to back new apartment buildings.

Los Angeles developer Cliff Goldstein just completed a plush new apartment complex on the Westside, but that’s the last one he’s going to build for the foreseeable future.

Even though demand for housing in the region is red-hot, many people who build apartments for a living have paused putting shovels in the ground because, they say, it’s just too hard to turn a profit.

“It’s a needle in a haystack to find an opportunity that makes financial sense to build today,” Goldstein said.

Ari Kahan used to have multiple projects with as many as 800 total units being built in Los Angeles at any given time. No more, he says.

“We haven't bought a site with the intention to develop it in over two years,” he said. “I don't know when we will be building in L.A next.”

The supply of fresh rental units, which make up the bulk of new housing in Los Angeles, is petering out despite robust demand. The vacancy rate is among the lowest in the country, while rental rates are among the highest nationwide.

Still, the number of new units under construction in Los Angeles has been falling each quarter since early last year and is set to dive to a more than 10-year low, according to real estate data provider CoStar.

Under 19,000 apartments were under construction in the three months through September. That's 30% fewer than three years earlier, according to CoStar’s count.

Developers say they can’t raise the money they need to build as many of their biggest backers — think pension funds, insurance companies and other institutions looking for long-term investments — don’t want to park their money in L.A. because the rapidly changing rules make it impossible to predict profits.