What does it really mean?
Gita Gopinath, the Economic Counsellor and Director of the Research Department at the International Monetary Fund (IMF) pointed towards an unprecedented economic downturn caused by the coronavirus.
In an article for the IMF, she explained that, “as countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown. The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes.”
The global economic downturn caused by the coronavirus has impacted the world in many ways. One of the noticeable effects of the downturn is that rent in most major cities, including Los Angeles, has dropped significantly.
What are the price reductions?
In downtown L.A., a 566 square foot one-bedroom at Eighth and Grand luxury apartments would cost a minimum of $2,286 last January. Now, the same size unit is $1,771, showing a 22.5% drop in price.
Showing a less dramatic drop, a few blocks away in another luxury apartment building, a 3-bedroom unit of 1,284 square feet dropped 9%, from $4,255 to $3,870. Other apartments are offering more concessions on top of lower rent, like two months of free rent.
According to CoStar, from the beginning of March rent, Class A properties, which are high-end properties, have fallen 4.3% on average, Class B properties dropped 2%, and Class C properties, dropped .2%.
The majority of analytical data, though it varies from company-to-company, shows a similar trend: luxury housing shows the highest price cut, and lower-end housing shows a smaller change.
The pandemic price dip.
The drop in rent has been attributed to people’s need to adjust to life during the economic downturn. During an economic decline, those living in luxury housing might opt to move to somewhere less expensive, either because they can’t afford the rent or they want to save more money.
Similarly, low-income housing areas are also seeing a drop in rent prices. This drop is attributed to the fact that many living in these areas work in industries that experienced heavy job losses, such as hospitality and retail.
However, the drop in rent is not likely due to a mass-exodus of renters leaving major cities. Although popular headlines point to hoards of people moving from urban settings to the suburbs and the country, these claims are mostly overstated.
An economist for Zillow points to the reality that the percentage of homebuyers looking in suburban areas through their website, 64%, has barely moved since the previous year. Jonathan Miller, who writes on New York real estate, expresses his skepticism over the mass-exodus theory, stating, “There is outbound mitigation…But the current narrative suggests there will be five people left in Manhattan by September.”
Most likely, landlords are lowering prices to compete with lower-priced housing that is less luxurious in an attempt to meet the needs of renters who are looking to save money or simply can’t afford the high-priced luxuries of cabanas and dog runs in their rent.
Although rent has dropped, experts say it could have dropped more if it weren’t for the extra boost given to unemployment benefits, especially in housing on the lower end of the market where many tenants faced unemployment with pandemic procedures in place.
The end of extra benefits could lead to increases in evictions and homelessness. If the statewide eviction pause ends, the UCLA Luskin Institute on Inequality and Democracy predicts that roughly 365,000 households in LA county will be at risk of eviction. 36,000 to 120,000 of those households could end up homeless for at least a short time. That estimate does not address the end of $600 benefits from COVID to unemployment.