A persistent lack of units to satisfy the growing demand for housing in Southern California will continue to drive rent increases throughout the region during the next two years, according to a USC study released Wednesday.
The 2025 Casden Real Estate Economics Forecast by researchers from the USC Lusk Center for Real Estate reported that vacancy rates remain low at around 5% in Los Angeles County and 4% in Orange County.
The Inland Empire remains Southern California’s most affordable rental market with vacancy at 6.4%.
The annual analysis also flagged broader economic risks such as a possible stock-market correction fueled by AI investments, elevated interest rates and rising federal debt that could further curtail already sluggish housing production in the region. Researchers said the forecast pairs its two-year housing projections “with the reality check that rebuilding into affordability will likely take sustained effort lasting a decade or more.”
According to the forecast, rent rose just 0.5% in LA County through October 2025, averaging $2,336. The vacancy rate was 5.37%.
Rents are expected to increase 0.64% over the each of the next two years to average $2,350 by October 2027.
Average rent this year as of October in Orange County was $2,776 with a 3.84% vacancy rate. Forecasters set annual rent growth of 2.52% in the county, with the average rent reaching $2,859 by October 2027, an annual increase of 2.5% over each of the next two years. The vacancy rate was expected to reach 4.21%.
“Housing affordability keeps shrinking for the people who need it most. The most data-backed solution is obvious: we need more housing,” forecast author Moussa Diop, associate professor of Real Estate at the USC Sol Price School of Public Policy, said in a statement. “Beginning with the 2008 downturn, the US lost the production capacity needed to meet long-term demand. We can build back, but it’s going to take an all-hands approach.”
While new housing construction in California remains weak, states including Texas and Florida have attracted former California residents and are building at much higher rates, according to the report. Adjusted for population, Texas permitted more than twice as many units as California despite facing similar high interest rates and volatile tariffs.
“Rent control or subsidies may offer short-term relief, but without new supply, these policies only entrench the problems they seek to solve,” Diop said. “San Diego shows what’s possible: in just five years, it built enough supply to make average rents cheaper than in Orange County after years of similar prices. We’ll soon see whether CEQA reform improves the reliability of infill development.”
According to the report, San Diego County’s average rent was $2,535 with a vacancy rate of 5.54% in October. The forecast said rent will rise slightly, reaching an average of $2,563 by October 2027 along with a reduced vacancy rate of 5.18%.
Looking ahead, the forecast expects much of the same in 2026 and 2027: slowly rising rents and not nearly enough new housing, with a handful of local exceptions. Regional conditions vary significantly in the report’s five regions: Los Angeles, Orange, San Diego, and Ventura counties, and the Inland Empire:
LA County
The Los Angeles County rental market is chronically undersupplied, according to the report. Years of sluggish construction has stagnated vacancy near 5% despite a recent, temporary surge. Despite having one of the slowest rent growth rates in Southern California, LA County rents increased only 0.5% this year to $2,336 not because of improving affordability, but because high luxury-segment vacancy offsets the average while tight conditions persist in lower-cost units.
The LA rental inventory grew only 1% in 2024, and units under construction have dropped sharply, pointing to even slower future development, researchers noted. Rent growth is expected to remain nearly flat at 0.6% over the next two years, well below gains in every other Southern California housing market.
“Without sustained development of both market-rate and affordable housing, Los Angeles will continue to lag the region in renter relief and investor confidence,” according to the report.
Orange County
Southern California’s tightest and most expensive rental market is in Orange County, defined by chronic undersupply and vacancy that rarely moves higher than 4%. Last year, the county added fewer than 0.5% of its rental stock, about 1,500 units, pushing average rents to $2,776. That’s 19% higher than Los Angeles County and nearly 10% above San Diego County.
This year, affordability eroded further as rent growth slowed to 1.5% while vacancy held near 4%. Forecasted rents will rise about 2.5% annually over the next two years.
The report noted that although new construction is expected to increase to about 2,500 units each year, the county’s housing supply continues to fall far short of demand, particularly in coastal and North County areas. Despite an incoming spike in new housing starts, the county will continue to be “fundamentally constrained and unaffordable” without big, sustained development.
Inland Empire
The Inland Empire remains most affordable rental market in the region, bolstered by Riverside and San Bernardino counties’ logistics-driven economy and a steady influx of new residents from coastal areas. Average rents reached $2,112 this year, about 10% under LA County and 25% below OC.
The report found that a responsive construction cycle kept conditions competitive to attain 6.4% vacancy. As new construction slows and vacancies fill, rents are projected to rise 4.6% over the next two years to about $2,210. While IE affordability is gradually narrowing, the area stands out as one of the Southern California’s “few markets where added supply has meaningfully restrained rent growth, underscoring the value of sustained development as demand continues to climb,” according to researchers.
San Diego County
The report found that San Diego County stands out as the region’s most responsive major rental market, “where pro-housing policies and steady development have kept rents meaningfully competitive.” Over the last five years, San Diego added nearly double the amount of rental units as Orange County — about 23,000 versus 12,000 — a pace that helped hold vacancy near 5% and kept rent growth to just 0.26% in 2025.
As a result, average rents now are about 9% under Orange County’s rate. Five years ago the two markets were nearly identical.
Over the next two years, rent growth is expected to pick up to around 1.9% as vacancy tightens and new construction slows.
“San Diego’s commitment to denser, transit-oriented development helped stabilize rents and offers a replicable model for other Southern California counties,” according to researchers.
Ventura County
Firmly established as a high-cost, low-delivery rental market, Ventura County remains among the most expensive areas in the region, according to the report. Average rents hit $2,628 this year, 13% above average rents in LA County, after posting the region’s third-fastest five-year rent growth at 3.8%.
Vacancy temporarily increased to 4.8% after a rare wave of new construction projects, but has historically sat below 5% for years because of a limited number of building projects.
Rent growth is expected to moderate to about 1.2% over the next two years as vacancy tightens back toward 4%, according to the forecast. While recent development tilted toward the middle tier of the market, overall housing volume remains too low to meaningfully affect affordability.
More information and past forecasts are available online at lusk.usc.edu/casden.