Los Angeles Apartment Development Stalls Amid High Rates and Local Policies

Developers in Los Angeles are significantly slowing new apartment construction, even as the city faces an acute housing crisis. Multifamily property values have dropped by nearly 30% over the past five years, with the average sale price per unit falling from $397,289 in 2022 to $280,591 in 2026, according to Kidder Mathews. This decline is attributed to several factors making new projects financially unfeasible.

Primary obstacles include elevated interest rates, which make financing significantly more expensive compared to pre-2022 levels. Additionally, developers point to the lasting impact of pandemic-era tenant protections, such as rent freezes and eviction moratoriums, which they claim suppressed revenues and created a backlog in eviction cases. The city's Measure ULA, a 2022 voter-approved tax levying 4% or 5.5% on property sales over $5.4 million, further erodes potential profits, making large-scale projects less attractive to investors.

Construction starts have fallen, with only 2,376 new apartment units completed in L.A. County in the first half of the year, a 9% drop from last year. Units under construction also decreased by 15%. While Mayor Karen Bass has introduced initiatives like Executive Directive 1 to expedite affordable housing and streamline permitting, developers like Paul Schon and analysts from Kidder Mathews indicate that the current economic and regulatory environment continues to deter investment in the dense multifamily housing Los Angeles needs.