California is building fewer homes. The state could get even more expensive

The Federal Reserve plans to cut interest rates later this year, which may help more projects make sense financially, as could rising rents.

Land sellers could also drop their asking prices to adjust for rising developer costs, including ULA in Los Angeles.

Normally, real estate analyst Patap said he'd expect apartment construction to rebound as land costs adjust downward. But he noted developers say they are also cautious about building in L.A. because of a broader political shift in the city that's more supportive of restrictions on landlords and more supportive of protections for tenants.

In the city of Los Angeles, multifamily permits dropped 24% in 2023 compared with 19% in Los Angeles County, census data show. (Data from the Construction Industry Research Board show even larger drops: 49% in the city and 39% in the county.)

Laurie Lustig-Bower, a commercial real estate broker with CBRE, said some L.A. landowners have reduced their prices to sell, but "if they don't have a gun to their head" they are waiting until developers can pay more.

In recent years, state lawmakers have taken action to make it easier to build housing, in part by eroding local control over land use decisions.

Los Angeles Mayor Karen Bass has also fast-tracked 100% affordable buildings under her Executive Directive 1, while the city recently exempted smaller projects from some storm water capture requirements.

Mott Smith, chairman of the Council of Infill Builders, said more must be done to increase the number of new homes in Los Angeles and cited the storm water decision as the kind of steps government should take.

"The city has no influence over interest rates ... [but] what it controls is the process to get a project approved," Smith said. "There are so many opportunities."

For now, developers say it's tough to find opportunities.

Kahan said his company runs the numbers on potential land purchases constantly and at least once a week finds it doesn't make sense to buy and build.

He expects to purchase some land in Southern California by year's end, though mostly outside of the city of Los Angeles where Kahan said he's increasingly looking because of costs from ULA, which unlike current interest rates aren't expected to change.

So far, Kahan said he's yet to find a deal that will work — within or outside city borders.