Marked Difference in Supply by Submarket
It is no secret Los Angeles has a chronic undersupply of new construction for-sale homes. In fact, we consider Los Angeles to be the most undersupplied major new home market in the country. One way to measure the under/over supply of new homes is looking at the ratio of population to new home projects – the higher the ratio, the more undersupplied a market is. With about 9.6M residents and 101 actively selling new home projects, there is a whopping 95K people per new home project in Los Angeles County. This is 5 to 10 times higher than nearly every major market in the country. Houston, for example, has a ratio of just 7k people for each new home project.
However, we took a closer look at the distribution of the new home projects and noticed significant variation among submarkets. The chart below compares this ratio of people to new home projects in each submarket.
Note: The submarkets in the chart do not include Downtown Los Angeles, West Los Angeles, and Northeast Los Angeles. New construction in these markets is largely restricted to small higher density condo projects.
With only 6 actively selling projects and a population of 1.8M, the San Fernando Valley boasts by far the highest person/project ratio at over 300K/project, followed by Southeast Los Angeles (Gateway Cities) at 166K/project and the South Bay at 112K/project. Given that most home buyers come from within the same submarket, this is a strong indicator that these submarkets are in most need of new construction homes. Submarkets with lower ratios (<60K/project) include Santa Clarita Valley, San Gabriel Valley, and Antelope Valley.
It is important to note that submarkets with higher ratios don’t necessarily translate to stronger new home demand. Other factors to consider are the types of homes offered, project setting,
schools, amenities, and price points. For instance, Santa Clarita Valley has the lowest ratio but is home to a number of master planned communities, offers relatively affordable price points, has good schools, pulls buyers from the San Fernando Valley, and is selling fairly well overall. In somewhat of a contrast, Southeast Los Angeles (Gateway Cities) has the second highest ratio but projects are mostly infill three-story townhomes targeting entry-level buyers, and sales have been mixed.
Although submarket supply conditions provide a good macro indicator of potential new home demand, it is only the starting point. Comprised of 88 incorporated cities and many unincorporated neighborhoods, Los Angeles is a uniquely diverse market and offering the right product at the right price point is crucial for success. Clarity specializes in understanding the nuances of market conditions not only on a submarket basis, but street by street and block by block.