Ventura County

VENTURA COUNTY

High Barriers to Entry and the Economics of Land-Use Favor Ventura
County Apartment Owners

By: Dawn Dyer, Dyer Sheehan Group

yriad factors have limited development of new multi-family housing units in Ventura County, and have done so for decades, despite continuous population growth and changes in economic factors and demographic trends that have fueled the demand for apartments.

While the high quality of life in Ventura County makes it a desirable place to live, income levels have not kept pace with home price appreciation, so many local residents can't afford to buy homes, creating additional renters.

Local land use policies, public sentiment, and economics have limited development for years in Ventura County. And yet, the majority of population growth in the region since 1990 has been from Natural Increase (net births over deaths), as opposed to Net Migration. This trend is expected to continue, putting further demand pressure on the local housing market.

Ventura County has been a pioneer of growth controls and restrictive land use policies for many years. As a result, the risk factor and cost of producing new housing has escalated, which has made it increasingly difficult for new apartment projects to "pencil out." The Guidelines for Orderly Development (GFOD) were originally adopted in 1969 by the Ventura Local Area Formation Commission (LAFCO), Ventura County, and each of the cities in the county. The GFOD are statements of local policies which provide that urban development should occur, whenever and wherever practical, within incorporated cities.

Urban development is defined as the need for a new community sewer system or the expansion of an existing community sewer system, the creation of residential lots less than two acres in area, or the establishment of commercial or industrial uses that are not related to agriculture or the production of mineral resources.

Ventura County development is further restricted by numerous additional land-use policies and voter‑approved initiatives, including: Greenbelt Agreements; Save Our Agricultural [and Open Space] Resources (SOAR) and City Urban Restriction Boundary (CURB) initiatives; Hillside View Shed Preservation ordinances; and the California Coastal Act, among others. New growth restriction ordinances are currently being promoted as ballot measures in several cities, such as the traffic initiatives in Oxnard and Thousand Oaks, and a height-limit ordinance in Ventura.

Even on those parcels of land that can still be developed in Ventura County, it has become more difficult to build apartments. In fact, the Construction Industry Research Board (CIRB) reports that during the 15-year period from 1993-2007, an average of 2,182 new single-family housing units were permitted per year, compared to an average of only 703 multi‑family housing (including apartments and condos) permits.

Property that is zoned for higher density residential development can generally be built out with either condominiums or apartments. But, condo prices have far outpaced "per door" apartment unit prices, creating less financial incentive to build rental housing. Neighborhood opposition to new apartment developments has further limited the supply of new rental units.

The rising prices of land, permits, development‑impact fees, insurance premiums, and construction labor and materials, have dramatically increased the cost of housing production in recent years.

While rents have also been appreciating steadily, it is still difficult to build new midmarket-rate apartments that generate sufficient economic returns to merit the risk and time value of the money required to brave the development process in Ventura County. While there have been some apartment communities built in recent years, many of these were either a required component of large master-planned communities (like River Park in Oxnard), large "luxury" communities, or "affordable" units built with the assistance of government subsidies and special financing.

The economics of land use in Ventura County will continue to limit development. The current slowdown in the financial and housing markets will further limit the production of new housing stock for a period of time, but the need for additional residential units will continue.

At the same time that Ventura County residents and policy makers have limited housing production, the population has continued to increase, adding an average of 9,350 new residents per year from 1993-2007 (Source: CA Dept of Finance), 67% of which came from Natural Increase. The allure of the Pacific Ocean, pastoral vistas and open spaces, diverse recreational and cultural amenities, and adjacency to the Los Angeles County metropolis will continue to attract new residents from outside of the area as well. However, while Ventura County's economy is quite diverse, providing residents with a relatively high median household income, home prices have risen beyond the reach of many residents.

The California Association of Realtors (CAR) reports a First-Time Buyer Housing Affordability Index of just 30% in the 4th quarter of 2007. CAR estimates that a first time home buyer would need to have a Minimum Qualifying Income of $106,200, to qualify to purchase a home at the median price of $530,800. But the Median Family Income in Ventura County for 2007 was only $79,500, leaving many residents seeking rental housing.

Additional demand for apartments is also being created by changes in population trends including household compositions, and lifestyle choices. We will further explore these issues, as well as how to position your investments, to take advantage of these opportunities in the next issue.

All information provided herein is from sources deemed to be reliable, but no guarantee or warranty is stated or implied.

Countywide Vacancy Rate Up 35% in Past Year

2008 Ventura County Multi-Housing Forecast — Part 2

By: Dawn Dyer, Dyer Sheehan Group

hy, one might ask, if vacancy rates are up, as reported last month, and the for-sale housing market is in the doldrums, have Ventura County rents continued to rise? While rent appreciation slowed down during the last six months of 2007, the overall average countywide rent rate reached a new record high of $1,470 in January 2008, up 4.25% from the previous year.

The Dyer Sheehan Group Multi-Family Rental Housing Survey, including nearly 20,000 apartment units in 189 properties, is the most comprehensive study available in Ventura County, and includes a variety of properties ranging from triplexes to large institutional‑quality complexes containing several hundred units each.

As with vacancy rates, there were substantial variations in rental‑rate data for the nine market areas throughout the county.

Although Thousand Oaks still has the highest average monthly rents for a 2-bedroom apartment at $1,739, this only represents a 1.5% increase over 2bedroom rents during the past year; as opposed to the loftier increase of 8.8% from January 2006 to January 2007.

By comparison, 2-bedroom rents in Fillmore increased 5% during 2007, to a new high of $1,040 in January 2008; while average 2-bedroom rents in Ojai actually decreased by $2 per month, to $1,098.

The continued increase in rents for most market sectors is related to the ongoing shortage of housing in Ventura County, especially rental housing, which has traditionally been more affordable than home ownership.

Furthermore, there is also an increased demand for rental housing from people who have lost their homes due to foreclosure, or are "sitting on the sidelines" of the real estate market waiting for the bottom before they buy, or because they cannot qualify under the new tighter mortgage underwriting standards.

2008 Ventura County Multi-Housing Forecast — Part 1

By: Dawn Dyer, Dyer Sheehan Group

or the first time in nearly 10 years, the vacancy rate for Ventura County apartments exceeds 5%. At the same time, countywide average monthly rents have continued to increase. The January 2008 countywide vacancy rate of 5.09% is up significantly from 3.76% in January 2007, and 2.17% in 2006. And yet, it is important to note that a vacancy rate of 5% is traditionally considered to represent "market equilibrium," where there is a reasonable selection of options for potential renters, and sufficient occupancy levels to support project economics for property owners.

While it may be troublesome for property owners and managers who have become accustomed to maintaining full buildings and long waiting lists, this slight increase in the vacancy rate has some advantages to the overall housing situation in Ventura County.

The most obvious implication is that appreciation in rents has slowed, which helps maintain the affordability of rental housing for some county workers who might otherwise have soon been priced out of the local market. The increased competition for renters, and longer time periods between tenants, have given some local owners the incentive to complete upgrades and maintenance projects on their properties, which does not always happen when the market is as tight as it has been in recent years.

The January 2008 data also indicates greater variances in both vacancy rates and rents than in other recent reports. The City of Ventura had the highest vacancy rate, at 7.58%, while Ojai and Fillmore were well under the countywide trend, at 1.52% and 2.33% respectively. However, there was also considerably more deviation between conditions at individual properties within a given market area, than there was previously. In Ventura, several communities still reported very strong occupancy levels of 98% or higher while others were less than 80% occupied.

There are a number of reasons given for the higher than "normal" vacancy rates.

1) General economic conditions top the list. Even though rent increases have slowed down, cumulative rent appreciation has surpassed wage growth in recent years.

2) Layoffs at some of the larger employers in the county have affected some areas and properties more significantly than others, as have troop deployments for some communities.

3) Many managers reported a continued exodus of renters leaving Ventura County or California due to the high cost of living along the coast.

4) With the slowdown in the home sales market, there has been an increase in the number of single-family homes and condominiums being offered for rent by private parties who haven't been able to sell their homes.

5) At the higher‑end rental communities, the cool-down in the housing market and continued low mortgage interest rates, have created opportunities for people who are paying top-end rents to transition into homeownership.

In the City of Ventura, there were additional factors contributing to the increase in the vacancy rate. Nearly 1,000 apartment units changed ownership last year, with the sale of a handful of large complexes. A change of ownership frequently creates a dip in occupancy levels as new policies and prices are often implemented.

One of these properties also had affordability requirements for a portion of the apartments that were tied to bond financing, which expired in 2007. When the units converted to market rents, most of the previous tenants vacated, and the units have not all been released yet.

There was also a significant increase in the vacancy rate for some large buildings that provide mostly studio and one-bedroom units. The tight economy had a more severe impact on this tenant base, with many single‑income households and tenants in transition.

Stay tuned next month for a Ventura County Update on rental rates.

Ventura County Launches New "Donate, Reuse, Recycle"
Website: www.VCMAX.org

he County of Ventura is proud to sponsor the www.VCMAX.org "Donate, Reuse, Recycle" waste reduction website and invites all county residents and businesses to tour the VCMAX program's virtual reuse warehouse, place free "Wanted" or "Available" ads, and check out all of the great items available that are either free or reasonably priced!

For five years, VCMAX, the Ventura County Materials Exchange, was a catalog‑based reuse program modeled after the State's popular CALMAX Materials Exchange program. In 2006 to reduce expenses, the County ceased publication of quarterly VCMAX reuse catalogs and converted the program to www.VCMAX.org, an internet‑based program dedicated to reuse, recycling, waste diversion, and public education!

The new site is a "one stop" REUSE RESOURCE that gives people the tools they need to place free wanted and available ads, and link to information about free electronic waste collection events; free Household Hazardous Waste Collection events; thrift and consignment stores; appliance recycling businesses; countywide recycling centers; Habitat for Humanity's ReStore, a thrift store for building materials; FoodShare; and the Ventura County Regional Energy Alliance's website for SAVE ENERGY ‑ SAVE MONEY tips.

The VCMAX website helps you arrange for a "Spring Cleanup" any time of the year, and don't forget that tax donation slips are provided for donations to charities such as ReStore, FoodShare and thrift stores.

The www.VCMAX.org reuse website was designed to help reduce landfill disposal by encouraging residents and businesses to safely dispose of Household Hazardous Waste and Electronic Waste, reduce their energy consumption, and reuse or donate materials that others in the county can use. Call Pandee Leachman in the Integrated Waste Management Division at 805-658-4315 for more information. The VCMAX program is provided by the County of Ventura.