Essex Property Trust Says West Coast Housing Demand is Strong

Michael Schall, president and CEO of Essex Property Trust, Inc. (NYSE: ESS), participated in a video interview at Nareit’s REITweek: 2018 Investor Conference in New York.

Schall said that with both the economy and job growth doing better than the company had expected, West Coast housing demand is “doing well,” driven by the tech markets.

“On the supply side, we continue to have periodic disruption from apartments mainly of the downtown areas where deliveries of new apartments are competing against one another,” he said. He added that concessions “from six weeks to two months” are enough to draw people out of stabilized communities and disrupt price.

“I think that will continue for some time, but overall, we’re doing well,” he said. “We expect market rents to grow about 3 percent, which is a decent year.”

Regarding population migration trends, Schall said the company has seen high-income and highly skilled earners moving from the East Coast westward. “At the same time, we were losing people that were in the lower income ranges [who] were moving to other Western states,” he said, noting he believes that group to be retirees relocating to more affordable locations.

Schall said Essex Property Trust is concerned about affordability of apartments in its markets, noting that the company’s income is growing at about 5.5 percent, “which is making our apartments more affordable and solving [the migration] issue.”

Schall noted the importance of understanding the Costa-Hawkins Rental Housing Act, a California state law that limits the severity of rent control. He said certain parameters are acceptable in rent-control ordinances and are then adopted by local governments. Repealing Costa-Hawkins would open the door to more extreme forms of rent control, which could unintentionally reduce the availability of apartment units within the marketplace.

“People [who] are in a rent-controlled unit will generally be paying less than market rents,” Schall said. “That means they will stay in their unit longer, which means fewer units will be available for people that are moving into the area, and they will be higher priced.”

So, while rent control helps the direct tenant, other tenants in search of housing “will be worse off, because availability will be impacted,” Schall said.