In the last few years, many investors are starting to shy away from the West Coast region in favor of areas with more room for growth. Despite recent changes in the region, it is too soon to write off the West Coast rental market altogether. The region is still suffering from a housing shortage, leaving plenty of opportunity for investment yet.
The West historically has housed, and still does, some of the most dense metropolitan areas in the entire country. Yet, some investors are choosing to flee the market for new hotspots in the Sunbelt. This trend is no coincidence — the development of the political climate in this area has understandably spooked many property owners. Between rent control and tenant-friendly regulations, many investors were already hesitant to navigate these challenges for prized West Coast property.
On top of that, new COVID-19 rules and regulations have added complexity and uncertainty into the mix. The CEO at New Standard Equities, Ring, affirms, “…onerous COVID-19 rules that were perhaps designed with good intentions have created a lot of unintended consequences that most certainly have negatively impacted housing providers. Many investors are somewhat spooked.”
The CEO, however, claims that giving up on this region now is a mistake. Despite new obstacles in the market, there is still “…a tremendous shortage of housing and available housing stock largely doesn’t meet the demand.” Beyond that, the demand in housing is based in a strong developed economy and workforce. The West Coast is notorious for its highly educated workforce with a large percentage of employees in biotech and global-leading tech industries.
These fundamental economic strengths outweigh the over-reaching political environment, rendering the West Coast a favorable market for multifamily investing both this year and in the next few years.
This region is also well-known as a high-barrier-to-entry market, and prices will only continue to rise. However, this shouldn’t discourage investors. There are many underlying factors in the housing market that will encourage a persistent imbalance between supply and demand in the area, such as stable employment, higher building costs, and limited available land combined with ever-challenging environmental laws. This dynamic should lead to rising cash flow for investors.
Another concern is news of outward migration patterns, especially from the state of California. Major headlines are focusing on a new narrative that people are fleeing cities like Los Angeles and San Francisco in a flurry. However, Ring points out that “…the out-migration would have to be much bigger to have a material impact. If California, the world’s fifth or sixth largest economy did suffer seriously meaningful out-migration, I would assume that would have a devastating effect on the rest of the US. It would take a long time for this economy to be replaced.”
Overall, the West Coast market offers stability in investment opportunity yet, and although there are concerns to be had and new roadblocks due to COVID-19 regulatory overreach, West Coast investments today are still promising investments in the long run. So, the verdict is, don’t give up on prime investment areas like Orange County and the Bay Area just yet.