The Myth of the Real Estate Bubble: West L.A. Prices Will Continue to Climb

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With home prices in the Westside already very high, it seems counter-intuitive to purchase a property there. Indeed, some real estate writers in the media are predicting another real estate bubble is about ready to burst.

They are wrong – very wrong.

The Westside is in the midst of an explosive economic trajectory that is unprecedented but solid. Well-established social media, technology and other companies that originated in Seattle and California’s Silicon Valley have now established roots in Los Angeles that are very deep. Indeed, the Westside has been re-branded by locals as “Silicon Beach.” Councilman Mike Bonin has said about the community of Playa Vista he serves, where many of these companies are operating, that it is “. . . the tech and innovation capital of Los Angeles.”

Here are some of the astounding numbers that underscore the seismic shift in business for this area:

Google already leases 100,000 square feet in three buildings in Venice. But it has since purchased 12 acres for $120 million in Playa Vista that is zoned for up to 900,000 square feet of commercial space and it is expected to lease the old Hughes Hangar that is yet another 319,000 square feet. In all, up to 6,000 highly-skilled, highly-paid technology employees will be able to fill that space. They will all be looking for housing and will expect that housing to be high quality and reflect their financial success.

Google subsidiary YouTube also rents a 41,000 square-foot video production facility in a nearby former Hughes building in Playa Vista.

Facebook may be leasing 35,000 square feet at Playa Vista’s Playa Jefferson.

Yahoo and Microsoft also have large presences in Playa Vista. And that’s just the big names.

This new technological hub is attracting not only local but out-of-area talent as well. For now, however, the big news is that available housing is definitely lagging and unable to meet the demand for young people flush with money and plenty of purchasing power.

Here are the hard, cold numbers: in Playa Vista, there are currently just nine homes for sale, only four of which are single family residences (SFRs). The cheapest home is $1,549,000. That price gets the buyer a 3 bedroom, 2,314 square foot home with no back yard, just a very modest patio with a view of the neighbors’ wall. Prices per square foot start at $630 and easily reach over $900.

In the past 90 days, the least expensive 3 bedroom home in the same area recently sold for $725,000 – again, no yard. The highest priced one was $1,850,000.

Fourteen homes – mostly condos – are in escrow.

In other words, there is a dramatic shortage of available housing in the area to soak up the demand of well-heeled home buyers. Any economist will tell you that when demand far outpaces supply, prices can only keep climbing due to shortage and what we call the inelasticity of demand.

Does this scenario still look like a bubble to you?

Posted on November 22, 2016 at 6:39 AM
Will Thomas | Category: Uncategorized

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