It has been a year of big changes and big decisions for Los Angelenos. Pandemic lockdowns. The rise of remote work. The rise of homeless encampments. The loss of income for many. There has been a measurable exodus out of the city and landlords have been pressured to re-price their rental properties accordingly.
As a result, the median price of a one-bedroom apartment in L.A. fell 15.5% in the past year, down to $2,683 a month. So…I don’t know how that sounds to you. To me, it sounds like a completely unaffordable one-bedroom is now still completely unaffordable.
A serious rental shortage in Los Angeles
Los Angeles has the second-lowest level of homeownership in the country, after New York City. That makes for a huge rental market. But New York was built to accommodate renters – only 15% of its residences are single home housing. Los Angeles’s residential sector, however, is comprised of 75% single home family structures. This has become a major contributing factor to the housing shortage (for house hunters as well, since so many of the single homes are purchased for rental units.)
A city filled with residential skyscrapers was never seen as a desirable solution. But there is a “missing middle” solution, according to John Dutton, an adjunct associate professor at the USC School of Architecture. He points to the old courtyard apartments that proliferated in L.A. up until the 1930s and can still be seen in West Hollywood and a few other locations as a higher density solution that is aesthetically pleasing and one that also promotes security and community.
I know exactly those courtyard complexes he’s referring to. They were usually decked with bountiful growths of pink and purple bougainvillea, and I would stare longingly through their gates, wondering when I’d be able to afford such a perfect haven.
As it turned out, my income and L.A. rents remained tragically incompatible. But I was far from alone with that problem.
The 30% rule and why it’s so important
This is the general spending recommendation of personal finance specialists – aim to spend no more than 30% of your gross (pre-tax) income on rent. It’s a guideline that half of all American renters just aren’t able to stick with. And in Los Angles, the situation is particularly bleak. Since the 2008 Great Recession, median rents in L.A. and California have risen at twice the national level, while inflation-adjusted median incomes have fallen by 9%. The result is that one-third of L.A. renters carry an extreme rent burden.
One renter, for example, exchanged her $1290 Atwater studio for an $1100 one-bedroom in Echo Park. Yes, it’s a better deal, but 50% of her income is going toward rent. A 40-year old renter shares a one-bedroom in Silverlake with his boyfriend. His half of the rent, $1100, is 50% of his income.
And that $2,683 median post-pandemic “bargain” rent – that wouldn’t have been 50% of my L.A. income. It wouldn’t even have been 100% of my income – it would actually have been closer to $110%. Los Angeles ultimately proved to be a completely unsustainable dream for me.
Too many people are paying up to 50% of their income on rent. I’ll illustrate the problem with that using my last fifteen years living in Los Angeles.
I lucked out (and wasn’t very picky)
Somehow, I found a family house that had been divided into three apartments. I got the smallest studio, which had once been the bedroom for the teenager of the house, and a small sort-of-eat-in kitchen. It was $450, utilities included. I lived there for fifteen years and by the time I left, the rent was up to $625. Not bad – almost like rent control. Oh, it had no central heating – just a space heater from the landlady. I confess, on cold winter evenings, I would open the oven and crank it up for an hour and a half, and then turn it off and climb into bed.
My salary at the time had maxed at $16.50 an hour (after working for three years) and I was able to enjoy that higher salary for two or three years. Just as importantly, I got a ton of overtime. I worked six days a week for almost a year and a half straight, plus overtime hours throughout the week, plus got double time for holidays. I went for about five years without having a Christmas, Thanksgiving, or New Year’s Day, and I was happy to make the tradeoff.
Money that doesn’t have to go toward rent
In six years’ time, I was able to pay off over $30,000 of debt and take three trips to Europe – one for a full month for a fiftieth birthday gift to myself. None of that would have been possible without limiting my rent expenditures. If I paid a more typical $1,000 to $1,200 for a decent one-bedroom in a modest neighborhood ($1,800 in the seaside neighborhoods that I dreamed about), then, in all probability, I would have left Los Angeles at least $20,000 in debt, and my vacations would have been restricted to a few trips to Disneyland. A high rent would have obliterated other opportunities.
So, the problem of high rent is that the opportunity costs have to be factored in. What’s left over for savings, investments, travel, car expenses, paying off debt, starting a side business, sports and music hobbies, and saving for a down payment? It’s a question best considered sooner rather than later. Because ten or twenty years into a steep rent, you may have a long laundry list of financial goals that you were never able to accomplish.
My departure made things worse for L.A.
My landlady asked me on several occasions whether I wouldn’t like for her to knock down the wall between my apartment and the one next door so that I could have a nice big space to live in. I said no thanks and didn’t even ask what the new rent would be. I was unemployed and in the middle of a long, unsuccessful job hunt.
But when my time to leave L.A. finally arrived, my landlady received the news rather cheerfully. My living in that little unheated apartment was not her most profitable option.
I knew it wouldn’t be long before my cheap studio was removed from the L.A. rental market. And the one-bedroom on the other side of my walls was also about to exit the market. In their place, would be a new two-bedroom that would far exceed the cost of both of the old apartments combined. I’m sorry, L.A. renters. I feel your pain.