Across Los Angeles’ most exclusive neighborhoods, multimillion-dollar mansions are increasingly sitting on the market. Inside their gates, salt water pools have gone all summer without a single swimmer, private movie theaters screened neither Barbie nor Oppenheimer and the pins in home bowling alleys have stayed steadfastly upright.
The issue? Now more than ever, these homes are not for sale, but for rent.
A concoction, consisting of high interest rates, a new transfer tax on sales, and the end of the pandemic, has been poisonous to the area’s ultra luxury rental market. Homeowners hoarding properties have caused more rental supply than ever, despite falling demand.
“A property that would otherwise be coming on the market for sale is really coming on the market for lease,” said Billy Rose, co-founder of residential real estate brokerage The Agency. “I’m one of those people.”
Rose, who is looking to move to Santa Monica and downsize, is currently renting in the area while looking for a buyer for his Westwood Hills home.
“If there were a point where I couldn’t sell it for a number that I felt comfortable selling, I would just lease it out,” Rose said.
In Beverly Hills, Sunset Strip, Brentwood and Pacific Palisades, there are more rental properties priced at $25,000 or more a month available now than in the past decade, according to data from the multiple listing service exclusively shared with The Messenger.
In Beverly Hills, especially, supply has skyrocketed. In January 2012, 254 properties at that price point were available to rent. As of Oct. 11, there are 1,035 properties.
The growth in supply was much needed during the pandemic, when affluent residents of Los Angeles and across the country chose to camp out in mansions. Between August 2020 and July 2021, total spending volume on rents in Beverly Hills exceeded $12 billion monthly.
In August 2021, that plummeted to $3 billion. It’s since fallen further. Last month, Beverly Hills’ ultraluxe rental market brought in $1.7 billion.
“In the higher end market, short term rentals have really compressed in terms of the nightly rate,” said Stuart Heller, CEO of Stay Awhile Villas, a luxury vacation rental company in Beverly Hills, Los Angeles and Malibu. “Properties that were possibly $7,000 a night are probably $3,000 a night, and the properties that are worth $3,000 per night are more like $1,500 per night.”
The increase in supply is partially natural. The number of groundbreakings for single-family homes has increased steadily throughout the years. In 2015, there were 4,800 home starts, while in 2020, there were 8,000, according to data firm Statista. L.A. has especially experienced a boom in the construction of luxury spec houses — turnkey properties that are not built for a specific buyer in mind — after the market previously struggled with a lack of supply to meet increasing demand.
But real estate agents say the main culprit in the rise in rentals is high interest rates, which lock homeowners into what’s referred to as ‘golden handcuffs.’ Homeowners with a low rate are hesitant to shed a property, especially if buyers are cautious to buy into a high rate. Instead, they decide to make money renting until rates are eventually lowered.
It also doesn’t help that L.A. sellers are facing a so-called mansion tax.
Prior to April 1, the market boomed as sellers aimed to avoid the implementation of Measure ULA. Now, they’re faced with a transfer tax of 4% for deals above $5 million and 5.5% for those above $10 million. Sellers have since become increasingly picky about whether to sell their homes.
“If their mortgage is only 10,000 or 12,000 bucks a month, because they’ve owned the property for quite some time, they can sit on that and have it on the market for a year. It’s only $100,000,” residential brokerage Compass agent Ryan Jancula said.
On the other hand, developers have pumped the brakes on building new inventory, since they can’t afford to cling onto their new developments in the way homeowners can.
Interest rates “have made a lot of developers gun shy, and they’re not really ready to go ahead and take any chances right now,” Jancula, who specializes in new construction, said. “Specifically because of ULA, that’s a double whammy.”
On its face, renting seems like a viable option. Leasing a multimillion dollar mansion became normalized during the pandemic. However, since Covid-19 is no longer declared a public health emergency by the Department of Health and Human Services and the World Health Organization, international travel has risen greatly. In the first quarter of 2022, Europe welcomed almost four times as many international arrivals as the same time in 2021, according to data by the World Tourism Organization.
Strikes by Hollywood actors and writers have also dealt a blow to the metropolitan’s real estate industry, as production being stalled has led workers to rent elsewhere.
Brokers added that clients from more dense cities, like New York and San Francisco, who rented in L.A. during the pandemic, have gone back to where they’re from, further decreasing demand.
Compass agent Megan Majd said that her clients now consist of celebrities renting with their families as tensions in the entertainment industry are resolved, professional athletes in their off seasons and tech executives. The increase of supply allows them to take advantage of the market, seeking homes with more amenities for lower than usual prices.
One of her listings in Malibu is asking $68,000 a month and offers a yoga studio, steam room, cold plunge and Bocce Ball court, among other features — many of which were added by the owner during the pandemic to attract renters.
Majd said that it’s one of the properties that always rents quickly.
“Renters have pretty good negotiating power right now. I’m seeing a lot of homes where somebody will come and see the home and they’ll try to go, ‘I will give you $20,000 less than you’re asking for a month,’” Majd said. “It obviously is up to the owner and based on their needs, but I’m finding that sometimes owners need to realize that the market is not as strong as it was.”
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