The rental apocalypse continues in Los Angeles.  It is interesting to see how far some house humpers will go trying to justify prices.  Some are arguing future weed sales are going to create another boom which is somewhat ironic since the benefits are actually to mellow you out, not turn you into a Taco Tuesday baby boomer that becomes a cubicle stressed slave just to purchase a home.  And many times people plan on having a family shortly after which means higher childcare costs which they tend to forget.  However, Los Angeles once again continues to be the worst place to rent in terms of affordability (and own for that matter).  Zillow put out some interesting research and of course as you would expect, those spending nearly half of their income on rent are simply not saving for retirement.

L.A. is the Whole Foods of rental markets

I liken the L.A. housing market to Whole Foods.  Great and healthy items that usually break the bank.  L.A. has a large number of young and healthy hipsters and Millennials but most can’t buy a home.  Heck, most Uber and Lyft drivers have nicer cars than most of us.  So we live in this market where the perception is that everyone is well off and healthy when in reality many homeowners are stuck in a ridiculous commute for a crap shack and that is bad for your health.

Of course this isn’t some made up figure.  Just take a look at how much income is dumped on rent in various markets:

la rents

Los Angeles by far is the worst market for renters surpassing even New York and San Francisco.  I’ve made this argument multiple times and that has to do with incomes being far lower in this area compared to San Francisco and New York.  Of course to house humpers they only see coastal Santa Monica and somehow use this as the reference for every other hood in the area where most of the plebs live.  They forget that L.A. County has 10,000,000 people with most not living on the coast.

So it is also telling that L.A. is largely a renting household dominated county.  You have millions of Millennials across the state living at home with their parents because rents are too expensive.  There is also this romantic idea that many people are stashing millions of dollars away by doing this but the stats show a different story.  Some are, but most are not.

What you have is Taco Tuesday baby boomers now stuck in granite countertop HGTV upgraded sarcophagi that they can’t leave for a variety of reasons including locked in Prop 13 tax assessments and adult children back in their nursery rooms.  You also have the issue of low inventory that is plaguing the country:

inventory

The low inventory dilemma is not only a SoCal phenomenon but has also impacted most urban metro markets.  This is why housing as an entire asset class has soared with the stock market since 2009.  Unlike the stock market however, scarcity has been a large factor driving prices up in real estate.

The issue of rents is problematic however.  As the percentage of households that rent grows, you are going to get those in the middle being squeezed.  What do renter households care if taxes get increased on property if they don’t own?  Back in 1978 when Prop 13 passed you had a much larger percentage of California homeowners.  Today that is clearly not the case.  “Well we’ll just increase the rent and pass it on!”  Do you think people think like this?  Of course not!  Just take a look at New York City where only 31 percent of households own.  And look at how they tax people there.  That is the future.  Where only the uber elite will be comfortable in their homes.  Grandfathered in Taco Tuesday baby boomer homeowners will live in million dollar crap shacks and shop at the 99 Cents Store.

The idea that broke Millennials were going to buy in mass in Los Angeles never made sense.  Many would rather eat out, work out, and live a more Spartan life (many by necessity).  Ironically more are healthier than those pot belly cubicle dwellers that are stuck in obscene traffic everyday having to make that massive 30-year mortgage commitment.  But hey, we do live in the Whole Foods of housing markets.

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