Multifamily Watch
Multifamily values have reset, financing remains expensive, and developers are choosing smaller projects even while Los Angeles housing stays scarce.
The Contradiction
Los Angeles County's apartment vacancy rate was 5.5% in the second quarter of 2026, up from 5% a year earlier. Average asking rent was $2,310 per month, only 0.2% higher over the same period. Those are not boom conditions, but renters still absorbed 2,411 units during the quarter, slightly more than the 2,376 units developers delivered.
Construction is moving in the opposite direction. Kidder Mathews counted 25,636 units underway, 15.4% fewer than a year earlier. Developers completed 6,205 units through the first half of 2026, down 8.8%. The Los Angeles Times reports that many developers are stepping back because rents and sale values no longer produce an adequate return against current financing, labor, material, fee, and regulatory costs.
The development pipeline is not waiting on demand. It is waiting on a return.
The Repricing
The average Los Angeles County multifamily sale price fell from $397,289 per unit in 2022 to $280,591 in 2026, a decline of roughly 29%. The latest figure was 3.3% higher than one year earlier, which may indicate that values are beginning to stabilize, but the market remains far below its peak.
Average capitalization rates rose from 5.5% to 5.8% over the past year. A higher cap rate generally produces a lower value for the same operating income, so even modest rent growth has not erased the effect of higher required returns. In one example reported by the Times, developer Paul Schon sold a 14-unit Hollywood building for $6.5 million in 2021 and recently bought it back for $4.75 million.
Investors have not disappeared. Broker Paul Darrow told the Times, “Lots of eyes are looking.” They are also more selective, favoring locations, building conditions, and operating profiles that can withstand conservative underwriting.
Cost Of Capital
Projects conceived when borrowing costs were near 2% face a very different calculation when financing is closer to 7%. Higher debt costs reduce land value, construction proceeds, and the price an investor can pay for a completed building.
Soft Costs And Fees
One developer estimated that design, consultants, approvals, and related soft costs now consume 20% to 25% of a project budget, compared with 10% to 12% about 15 years ago. The city's 2026 park fee alone is $8,929 per apartment, or $446,450 for 50 units.
Exit Risk
Measure ULA applies a 4% or 5.5% transfer tax to qualifying Los Angeles property sales, including apartment buildings. The Times reports that the current threshold begins at $5.4 million. That prospective cost is now part of acquisition and development models.
The Smaller-Building Shift
Developers interviewed by the Times described moving toward accessory dwelling units, townhomes, small-lot homes, and buildings with four units or fewer. One 14,000-square-foot parcel that might accommodate 40 to 50 apartments is instead being developed with 10 homes. Another site once planned for 56 apartments remains a parking lot.
State and local reforms can shorten approvals and allow greater density. Mayor Karen Bass's office says nearly 50,000 affordable units have been fast-tracked, while Senate Bill 79 expands development potential near transit. As of the Times report, however, Los Angeles had not received an SB 79 proposal. Faster approval helps reduce time and uncertainty, but it does not by itself close a financing gap.
The Real Estate Read
Vacancy has loosened slightly and rent growth is modest today. Fewer starts and completions could reduce future choices, however, particularly in neighborhoods where job access and transit keep demand durable.
Prices have reset and cap rates have widened, creating openings for patient capital. The opportunity depends on current income, building condition, insurance, local rent rules, financing, and the taxes due when the property is eventually sold.
Buyers are underwriting more conservatively and distinguishing sharply among submarkets. Stable operations, documented building condition, and a credible path to income growth carry more weight than peak-era comparable sales.
Entitlement capacity and land value are no longer synonymous. A site's value depends on whether a project can support today's total cost, financing, required return, and future sale assumptions.
Source note: this page is original commentary based on Los Angeles Times reporting published September 22, 2026 and Kidder Mathews' Los Angeles multifamily market report for the second quarter of 2026, which cites CoStar data. Market figures generally describe Los Angeles County or the report's Los Angeles market, while policy references may apply only within the City of Los Angeles. Individual project and cost examples are reported anecdotes, not audited market averages. Fees and Measure ULA thresholds may change. Information and figures are subject to errors and omissions; readers should independently review and verify all market, legal, tax, financing, and property-specific information with appropriate professionals.
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