The Los Angeles real estate market faces unique challenges that set it apart from national trends, according to Josh Luchs, Executive Vice President at Kidder Mathews, who argues local politics rather than interest rates are driving market behavior.
The Local Political Impact
“Unlike the rest of the country, here, the interest rates are not the story, with respect to the apprehension that some of the buyers in this market are experiencing,” Luchs says. Instead, he points to the city’s legislative environment as the primary concern for investors.
According to Luchs, the presence of Democratic Socialist Party members on the City Council has created uncertainty about property rights and market stability. “When you have decision makers who are changing the rules of the game in the middle of the game that you’re playing, it makes it very difficult for an investor to figure out a way to make these things work,” he explains.
Beyond Traditional Market Forces
While much of the national real estate conversation centers on interest rates and cap rates, Luchs argues that Los Angeles contends with a different set of structural challenges. These include frequent eviction moratoriums enacted during various emergencies, the expansion of rent control measures, and a growing policy emphasis on tenant rights over property rights. Adding to the uncertainty, developers and investors face ongoing concerns about potential future regulatory changes that could further reshape the city’s housing landscape.
“Owner-investors can figure it out. They’ll build with their IRR. They’ll base it on certain interest rates and certain assumptions,” Luchs says. “But when you have decision makers who are changing the rules of the game in the middle of the game that you’re playing, it makes it very difficult.”
The Call for Industry Engagement
Luchs argues property owners need to become more politically engaged to protect their investments. “The most powerful people in this city that determine whether or not your investment is going to be viable and survive are the members of the LA City Council,” he says.
He particularly warns against complacency among longtime owners: “An ostrich sticks its head in the sand, it shouldn’t be surprised when it gets kicked in the backside. You need to be realistic, and you need to vote.”
Looking Forward
While Luchs remains confident in the long-term fundamentals of Los Angeles real estate, he underscores the importance of active civic engagement to preserve a balanced housing market. He advises industry participants to support apartment owner associations, get involved in local elections, understand where council members stand ideologically, and back moderate candidates who recognize the importance of protecting property rights alongside tenant protections.
“There is nothing that screams capitalism more than commercial real estate. It is the centerpiece and shining light of a capitalist society,” Luchs says. “And unfortunately, we have a shift to socialism in our leadership, and it’s going to be more challenging for people to navigate.”
