Challenges Facing Developers in Building Homes: Rising Costs, Regulations, and Market Conditions
Ken Kahan, president of California Landmark Group, has made a name for himself building luxury apartment complexes in Los Angeles neighborhoods like Palms and Silver Lake. However, recent challenges in the housing market have forced him to pull back on new projects.
Developers across California and the nation are starting fewer homes in 2023, citing high labor and material costs, new regulations, and most significantly, the high cost of borrowing. Rising interest rates are making it more expensive for Americans to buy homes and adding additional costs for developers.
In Los Angeles, developers are also contending with Measure ULA, a citywide property transfer tax that applies to properties sold for more than $5 million. This additional cost is making it even harder for developers to earn a reasonable profit in an already risky business.
Despite these challenges, there are signs of improvement in the housing market. Single-family home builders are pulling more permits, while multifamily permits continue to decline. However, the diverging paths between single-family and multifamily homes are a consistent theme across the country.
While the housing market may rebound in the future, developers are currently cautious about building in Los Angeles due to a political shift in the city that is more supportive of restrictions on landlords and protections for tenants. This caution, combined with rising costs and regulations, is making it tough for developers like Ken Kahan to find viable opportunities in the current market.
As the housing market continues to evolve, developers are keeping a close eye on factors like interest rates, land costs, and government regulations. For now, Kahan and others in the industry are facing challenges in finding profitable projects in an increasingly complex and competitive market.