Changes in LA Real Estate: Suburbs Seen as Sub-Optimal, While Renters Pay for Capital Improvements

Owning a home with enough space for the household to live comfortably (e.g., each with their own bedroom), in a neighborhood that’s safe and clean has been an important part of the American dream.  In large city metro areas, this could mean moving out of the urban center to suburban areas, with daily work commutes made feasible by a high-speed train, bus, or comfortable vehicle.  At the higher end, larger homes with more land, more privacy, quiet streets, and more natural beauty were commonly sought.    

In Los Angeles, however, the dream of home ownership is evolving. And, this shift is in the context of LA’s monumental housing shortage, estimated at one million units.

LA Real Estate Trends Driven by Boomers and Millennials Reveal an Evolving American Dream

Millennials Want “Walkable” –  More Urban, Denser Communities

Moving against the vision of suburban home desirability is the emergence of the sharing economy, which Airbnb and Uber have catapulted to prominence. This trend is, in part, driven by Millennial consumer preferences to under-consume fixed assets like homes and cars.

Many Millennials prefer to live in urban environments, where they can walk to local amenities and unparalleled city life access. Along with a number of other factors carefully examined, Urban.org found that:   

“Millennials’ location preferences partially explain their decline in homeownership. Over the past decade, a greater share of millennials with higher educational attainment chose to live in cities where the housing supply is inelastic. Because these cities are less affordable, their homeownership rate would have been negatively affected by this migration pattern.”

While 80% of Millennial renters want to buy a home, affordability is a huge issue in general, and even more so in cities like Los Angeles, where many will have to defer their purchase for years.

Accordingly, it’s not surprising to find many of the consumers for new vertical condominiums being built in DTLA (downtown Los Angeles) are Millennials. Joe Cilic, Broker at Sotheby’s International Realty explains:

“This has been really well documented with Millennials. Moving into the city, they don’t need to get into their cars. DTLA has been huge with Millennials. It’s a bit grittier than the other places, and residents have to be okay with that. Millennials are more accepting, including hipsters, and feel like they jive well with that community.  Also, by LA standards, DTLA is more affordable ($300,000-$400,000 for an entry-level one bedroom). Culver City is another example neighborhood. You can walk to many different things in Culver City. Living in the condos and even the little homes in those areas. Those small homes get torn down less often; more often it’s renovating the existing footprint and keeping it a small property. There’s also talk of Millennials not caring to own, just looking to rent.”

LA Real Estate Trends Driven by Boomers and Millennials Reveal an Evolving American Dream

Not Just Millennials, Baby Boomers Also Prefer Access, and LA is Becoming More Vertical than “Ever Before”

LA Real Estate Trends Driven by Boomers and Millennials Reveal an Evolving American Dream

The preference for these walkable communities and ease of access doesn’t stop with Millennials.  This type of lifestyle is also highly desirable to Baby Boomers and even the very wealthy. Cilic elaborates:

“Internationally, in many cities like Vancouver, Hong Kong, New York, it’s all apartments and condos. Historically, there were very few wealthy Angelinos living in apartments and condos. Today, a lot of people who are retiring want to be more in the mix, and have things more accessible. They want to be able to get to things and have some life around them, rather than being secluded somewhere and really far from the action. A typical move I see is from the flats of Beverly Hills or the hills of Brentwood to Santa Monica, e.g., Ocean Avenue.  Single floor condos are something we often see. Even if it’s for a second home. A lot of the retirees want to be close to adult children. Buy a condo in a place that’s really accessible and walkable. Spend part of the year, not the whole year. People don’t like the seclusion as much as they used to. Even with the very wealthy. I have a very wealthy client who typically would look at very secluded properties, now they want it to be walkable to restaurants.”

While DTLA may be a bit too gritty for some retirees, other areas like Santa Monica, Pacific Palisades village, Marina del Rey, or West Hollywood  deliver the desired lifestyle. Cilic notes that there is also a risk in over-building luxury, particularly in DTLA, though the vast majority of developments are being built as rentals.

“Semi-Permanent” Renters Improve Their Spaces

In some areas, LA has older rental housing stock that still commands a premium price, yet doesn’t offer amenities that would be found elsewhere. A good example of this is wall-to-wall carpeting throughout most of the rental unit. In Los Angeles, semi-permanent renters will choose to replace this, either splitting cost with the landlord, or perhaps bearing the whole cost. When I moved to Santa Monica in 2015, for instance, I was dismayed to find wall to wall carpeting in the bathrooms of my rental condominium, and quickly moved to change this to a hard surface. Cilic observes,

“I see people who get a rental and go in and rehab a rental so it looks good for them. Converting to hardwood floors is common.  We also see lifelong renters, those who would rather rent than own, even though they could afford to buy. Often, I would advise them about the benefits of buying to lock in costs, if they plan to stay long-term.”

Looking the Part for Luxury Real Estate Agents

Dress is famously varied in LA, with tech types favoring the studied casual of expensive jeans and t-shirts, while others opt for smart casual, and still others prefer more formal attire.  In selling high end properties, the agent is judged on their clothing, but also their car.  Cilic comments:

“I would always err on the side of being professional and being myself. I am an attorney and a former senior executive. My background is as a professional. And that’s how I show up, in a suit. Even when meeting with wealthy Millennials from the tech industry, who have never worn a suit. They may be used to contemporaries wearing t-shirt and shorts, but they may expect more professionalism from a real estate agent. But there are other agents who will show up in tennis shoes for billion dollar clients

“This is Los Angeles, so you are judged on the car you drive. On the discussion forum with hundreds of comments from agents all over the country, I noted that Los Angeles skews towards Mercedes (very common, big S class). I have a Mercedes but a different one, a newer, fun one. There are also a lot of Range Rovers SUVs, Mercedes G Wagons, and Bentley SUVs. While an expensive luxury car is not needed for $500,000 condos, we often sell properties north of 10 million.”

These LA real estate trends show a dramatically different picture of home ownership than Americans are used to. From urban condo home-ownership to semi-permanent renters making capital improvements, the dream of home ownership is changing in ways that would be hard to imagine a decade ago.