Why L.A. Developers Aren’t Building More Apartments Despite the Housing Shortage

The post Why L.A. Developers Aren’t Building More Apartments Despite the Housing Shortage first appeared on Crafting Your Home.

Los Angeles has a housing shortage, strong demand for apartments, and a long-running need for more homes. Yet developers who could add thousands of new apartments are increasingly putting projects on hold.

The reason is surprisingly simple: many apartment projects no longer make financial sense.

A recent Los Angeles Times report found that multifamily property values in Los Angeles County have fallen sharply, while financing, construction, and development costs remain high. That combination has made developers much more cautious about starting large apartment projects.

Apartment Values Have Fallen

The numbers help explain the hesitation.

According to data from commercial real estate firm Kidder Mathews cited by the Los Angeles Times, the average sale price per unit in new and existing multifamily buildings in Los Angeles County fell from $397,289 in 2022 to $280,591 in 2026.

That’s a decline of roughly 30%.

For a developer considering a major apartment project, that matters enormously. Building a property requires spending millions of dollars before a single apartment can be rented. If the finished building is worth substantially less than expected, the project can become difficult to justify to investors and lenders.

As a result, some developers are choosing not to start projects at all.

Higher Interest Rates Are Making Projects More Expensive

One of the biggest problems is borrowing costs.

Apartment developers typically need significant financing to purchase land and pay for construction. When interest rates rise, the cost of carrying that debt rises as well.

The Los Angeles Times reported that developers who could previously borrow at rates around 2% are now facing rates closer to 7% in some circumstances.

That difference can dramatically change a project’s economics.

A development that once looked profitable can become unworkable when millions of dollars in additional interest expenses are added to the budget.

And developers aren’t dealing with higher financing costs alone.

Construction and Development Costs Keep Adding Up

The price of constructing an apartment building includes far more than concrete, steel and workers.

Developers also face what the industry calls soft costs, expenses such as permits, inspections, professional services, and other development-related fees.

Developer Yoni Chriqui told the Los Angeles Times that these costs once represented roughly 10% to 12% of a project’s budget. He estimated that they now account for about 20% to 25%.

Los Angeles also charges development-related fees. The Times reported that the city’s multifamily park fees reached $8,929 per unit in 2026.

For a 50-unit apartment project, that would amount to more than $446,000 in park fees alone.

The Mansion Tax Has Become Another Consideration

Another issue developers point to is Los Angeles’ Measure ULA, commonly called the mansion tax.

The measure imposes a 4% or 5.5% transfer tax on certain property sales above $5.4 million. Despite its nickname, the tax applies to more than luxury homes. Apartment buildings, parking lots, and other properties can also be affected.

For developers, the potential impact matters most when a property is eventually sold.

The Los Angeles Times reported that some developers say the tax reduces the potential return from apartment projects and makes it harder to attract investment.

Some developers have responded by building smaller projects that remain below the tax threshold rather than taking on larger apartment developments.

Developers Are Choosing Smaller Projects

This may be one of the clearest signs of how the economics have changed.

Instead of constructing a building with dozens of apartments, some developers are turning toward smaller projects such as single-family homes, townhouses and accessory dwelling units.

The Times reported that some developers who previously built projects containing 20 to 30 apartments are now choosing four units or fewer.

That decision may make sense for an individual developer trying to limit financial risk, but it also has an important consequence for the housing supply.

A parcel that could support dozens of homes may end up producing only a handful.

Transit-Friendly Land Isn’t Automatically Producing Apartments

Los Angeles has also been working to make it easier to build taller and denser housing in certain areas.

California’s SB 79, which took effect in July 2026, allows qualifying development near transit stops to exceed some local zoning restrictions.

But changing what developers can legally build doesn’t necessarily mean they’ll build it right away.

The Los Angeles Times reported that, as of September, no project had been proposed in Los Angeles under SB 79, according to the city’s planning department.

Developers still have to make the financial numbers work.

A developer might be legally allowed to build a larger apartment building. Still, if financing and construction costs exceed the expected return, the added density may not make the project worthwhile.

The Housing Shortage Doesn’t Automatically Solve the Development Problem

This is the frustrating contradiction facing Los Angeles.

Demand for housing is strong, yet demand alone doesn’t guarantee new apartments will be built.

California’s broader housing picture shows the same problem. A recent CalMatters analysis found that fewer than one-third of California cities and counties were on pace to meet their state targets for market-rate housing. In contrast, progress toward lower-income housing targets was even slower.

In Los Angeles, the result is a market where renters still need more housing while developers face an unusually difficult environment to produce it.

The situation is also not unique to California. Higher financing costs and difficult development conditions are affecting housing construction in other parts of the country as well.

What Could Change?

The Los Angeles Times reported that some developers believe apartment construction could become more attractive if financing conditions improve, property values stabilize, and development costs become easier to manage.

Efforts to speed up parts of the approval process are already underway. Mayor Karen Bass’ administration has introduced measures intended to accelerate permitting, while California has adopted policies intended to allow more housing near transit.

But these changes do not instantly solve the financial equation.

For developers, the basic calculation remains straightforward: Can the completed building generate enough value to justify the cost of buying the land, borrowing the money, obtaining approvals, and constructing the apartments?

Right now, many developers in Los Angeles say no.

That helps explain one of the city’s most difficult housing paradoxes: Los Angeles needs more apartments, but the people who build them don’t necessarily see enough financial incentive to do so.

Until that calculation changes, some parcels capable of holding dozens or even hundreds of homes may continue to sit as parking lots, low-density developments, or unfinished projects.

And that means the city’s housing shortage can persist even when everyone agrees that more homes are needed.