L.A. rents going up: with scant construction, tenants paying highest prices in a decade.

When Kelli Hedgpeth saw the rent on her Century City apartment go up $300 last month, she and her roommates hit the trail - finding cheaper digs elsewhere.

"All our neighbors got their rents raised too," Hedgpeth said. "The place next to us, which was going for $1,500 before, was rented for over $2,000 when they moved out. And I have other friends whose rents skyrocketed, too."

Like Hedgpeth, renters across Los Angeles County are experiencing the first substantial rent increases in this decade. As of June, average rents climbed 6 percent over the 1997 average - to a decade high of $654, according to new statistics from the Apartment Owners Association of Southern California.

By comparison, rents dropped 2 percent in 1997, and rose just 1 percent the year before.

At the same time, vacancy rates have fallen steadily, from a high of 12 percent in 1993 to 5.4 percent, according to the landlord association, which bases its report on an annual survey of about 20,000 units in L.A. County.

"The good news is that occupancy rates have been rising," said association Vice President Jim Rodriguez, who administers the poll. "The really good news is that we were finally able to raise rents."

Overall, prices and vacancy rates are nearly identical to their levels at the peak of the real estate boom, in 1991.

Housing experts say that population growth, the expanding economy and the lack of new apartment construction have created a situation where demand has substantially outstripped supply.

Based on job growth and the number of new family units being created within the county, the market demand for housing is well in excess of 50,000 units per year, said Ken Agid, a development marketing consultant and Playa Capital LLC vice president.

During the recession, L.A. County averaged 8.500 new housing unit permits (including apartments and single-family homes), down from over 48,000 new permits in the late 1980s.

"It's like musical chairs," said Agid. "If you have 50,000 prospective consumers chasing after 8,500 chairs, you are going to end up with substantial upward pressure on the value of the available supply."

The lack of new construction has meant a dearth of available newer properties.

Rent inflation is particularly acute on the Westside, according to the apartment association, which found that rents soared an average 18 percent, from $677 in June 1997 to $797 in June 1998.

"It's an extreme example, but one of my apartment buildings had a tenant vacate at $2,000 month, and now we're asking $3,200," said Laurie Lustig, a vice president with CB Richard Ellis Inc. specializing in Westside apartment buildings.

David Whitehead, who owns 20 Westside buildings in partnership with Christina Development Corp., said that in his experience, rents have gone up between 10 percent and 15 percent.

"Units are renting within three days - without putting up a sign," he said. "We can pick and choose the tenants, and we're not giving concessions. We just rented an apartment in Brentwood for $1,075 that three years ago was renting at $875."

Rents in both the San Fernando Valley and South Bay areas experienced growth rates of 3 percent from last year, to $606 and $649 respectively. San Gabriel Valley rents rose 2 percent, to an average of $621. Rents in Central/Eastern Los Angeles stayed the same.

"It's amazing to me how much money it is now," said Catherine Carpenter, who recently moved into an $825 one-bedroom bungalow in Montrose. "Except for the down payment, it's almost the same as buying a house. It's a little disheartening."

Countywide, rents for one and two bedrooms are at their highest since 1991. One-bedroom apartments cost an average of $596, and two-bedroom apartments average $752.

Three-bedroom apartments now cost an average of $931, and bachelor/single apartment are $455.

The rising demand also has been fueled by newcomers to L.A. Attracted by the strong economy and employment opportunities, immigrants last year were more numerous than emigrants - the first time that's happened since 1992. In 1997, the county experienced a net increase of 20,200 people.

One such newcomer is New Yorker Christine Carlson, who now lives with her boyfriend in a one-bedroom cottage in Hancock Park. They pay $1,100 a month, a price which, compared with New York, seems very reasonable. "Rent-wise, L.A. is a lot better," Carlson said. "We paid the same amount in New York for an apartment a third the size of this one. So to us, this is great. I think you get what you pay for. If you spend under $1,000, you won't get as nice a place."

While rents may not have increased in recent years, the rental income to landlords has been on the rise, because vacancy rates have been declining.

"Rents stayed the same, but occupancy levels went up, so there was a gradual increase in income," said Rodriguez, of the apartment owners association.

In fact, owners are seeing more rent revenue now than any time in this decade. Apartment owners use a term called "average effective rent" that factors in vacant units. Because there are fewer vacancies, the average effective rent is now $619 per apartment, up 9 percent from last year and 11.5 percent from 1993.

The current number is the highest yet this decade - the effective rent was $602 in 1991.

Effective rents have also gone up because landlords have stopped offering freebies to entice new tenants. "Back in '95, for example, you'd offer one month free on a 12-month leased," said Lustig, of CB Richard Ellis. "Then the one-month free started disappearing."

Real estate investors, noting the increased revenues from rent and the heightened demand, have been wagering that rents will continue to go up.

Not only are investors paying greater average dollar amounts per unit, they are accepting lower returns on the dollar in the expectation that future increases in rent will push returns upward.

"In effect, they're buying futures," said Ossenbeck. "How far they go depends on their perception of where rents are going."

In 1996, the average investor purchased a building at 5.46 times its annual rent potential. Now, the average investor is paying 6.27 times the building's potential rents, according to Comps InfoSystems Inc., which tracks real estate transactions.

The price paid per unit has also escalated, from $42,026 in 1996 to $50,879 as of last week.

The rent increases are coming about in spite of local rent control laws, which generally prohibit owners of older apartments from raising rents more than a fixed percentage. But owners are usually allowed to raise the rent to market rates when a lease expires or the unit becomes vacant.

Although rent hikes bother renters, the strong economy has meant that many can afford to pay more.

"In the mid-1990s there were tough times," said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles. "A lot of people were doubling up, or continuing to live at home because they may have had a hard time finding a job or had jobs that didn't pay them well. Now with the economy moving ahead, we see an uptick in demand for housing of all kinds."