Why Do People Continue to Invest Here?

In This Article

I currently live in Los Angeles, for better or worse. Yes, there’s crime. Yes, there’s a homeless problem. And yes, it’s unfriendly to business, even the film business. 

But the food is world-class, the weather is unbeatable, the culture is diverse, the beach is nearby, and so are the mountains. As one developer I met put it: “Los Angeles is the most-amenitied place in America.”

As of 2024, California is the world’s fourth-largest economy, with a GDP of $4.1 trillion, ahead of Texas ($2.7 trillion) and New York ($2.3 trillion). But how much of this GDP is from the Bay Area and Silicon Valley, home to some of the most valuable companies on Earth? We must draw a distinction between the economies of each metro and see where Los Angeles falls in line.

Comparing LA to Silicon Valley

The 2023 GDP of the Bay Area (the San Francisco-Oakland-Berkeley, CA MSA) was about $779 billion in 2023, and Silicon Valley (the San Jose-Sunnyvale-Santa Clara, CA MSA) was about $423 billion. If it’s fair to combine these two markets, the general Bay Area-Silicon Valley market had a GDP of about $1.2 trillion, with a combined population of 6.7 million.

Comparatively, the Los Angeles MSA (Los Angeles County and Orange County) had a GDP of about $1.3 trillion in 2023 with a population of 13 million; a similar GDP with a higher population count means a smaller GDP per capita. We can see this when we look at GDP per capita at the county level.

The first four counties in this bar chart make up the Bay Area and Silicon Valley. You can see each county has a higher GDP per capita than Los Angeles (and its neighboring county, Orange).

In conclusion, the Bay Area and Silicon Valley have a higher GDP per capita than Los Angeles, indicating the local economy is more productive on a per-person basis in Silicon Valley than in LA.

Los Angeles’s Economy

Now, let’s do a deep dive into Los Angeles’s economy and job market. The LA metropolitan area’s job market has barely broken through its 2019 record:

Let’s dive deeper into why by looking at job occupations:

Pretty much every job category has shrunk compared to their 2019 levels, except for private education and health services.

This shouldn’t come as a surprise if you’ve consumed any headlines about the California exodus. Take a look at this discussion in the BiggerPockets forums about a study predicting job losses. (It was posted nine years ago, and more or less got it right.)

Digging deeper, I discovered that as of 2024, California has more Fortune 500 companies than Texas or New York (57 companies, compared to Texas and New York, which both had 52). However, the overwhelming majority of these companies are in the Bay Area and Silicon Valley. Only the following are based in Los Angeles or Orange County:

• Walt Disney (in Burbank)
• Molina Healthcare (in Long Beach)
• Live Nation Entertainment (in Beverly Hills)
• Edison International (in Rosemead)
• Farmers Insurance (in Woodland Hills)
• Pacific Life (in Newport Beach)
• Chipotle (in Newport Beach)
• A-Mark Precious Metals (in El Segundo)
• Skechers (in Manhattan Beach)

Silicon Valley is home to the majority of Fortune 500 company headquarters, with 46, compared to Los Angeles and Orange County’s nine (the remaining two are in Ventura and Riverside County). The current boom in artificial intelligence (AI) technology is likely to keep Silicon Valley as a thriving economy. And even if AI tech is a bubble that pops, San Francisco has always been a boom-and-bust market that bounces back. 

But what about Hollywood? According to a recent study published by Otis College of Art and Design, employment in the entertainment industry is still below its 2022 peak and may not reach this peak again anytime soon. But employment in the arts has seemed to stabilize for the most part (at least for now, it has stopped shrinking). 

But why isn’t it worse, given you can produce content from virtually anywhere in the world? It’s likely due to the large talent base— the same reason many tech companies have remained headquartered in Silicon Valley). For now, Los Angeles is still a network-affected hub of entertainment (and exported culture). 

So no, the Los Angeles economy is not in a Detroit-style doom spiral of employment loss. At least, not as long as creatives want to live there. But at least 50 companies have relocated their HQs away from Los Angeles from 2018-2023 due to the unfavorable business climate. 

For this reason, I do not think Los Angeles is riding a rising tide like Austin, Texas;  Dallas, Nashville, Tennessee; Phoenix, Raleigh, North Carolina; or Boise, Idaho. I do think LA as a whole is experiencing economic headwinds that will slow down the appreciation of its real estate. 

Los Angeles appears to be a good place to live if you’re a renter (due to favorable tenant laws) or if you occupy your primary residence (due to favorable property tax laws), given you can actually afford housing there. But it’s arguably one of the worst places to be a business owner unless your business is reliant on the local entertainment talent force or needs year-round perfect weather (or you’re a business owner who loves living in Southern California and will continue to live and work there, no matter what).

Real Estate Price Appreciation in Los Angeles

Let’s now take a look at the main reason anyone considers investing in Los Angeles: price appreciation.

Los Angeles is geographically constrained between the ocean and the mountains; there is only so much you can build. In addition, the county is very unfriendly to new construction. Builders have to jump through many hurdles and years of permitting to build new apartments. 

As long as people continue to demand housing and supply is hard to create, prices will continue to be pushed up. But like everything in real estate, location matters. Certain neighborhoods are more desirable than others, especially as you get closer to the beach or the hills. 

Pasadena and South Pasadena are exceptions. These neighborhoods are not near the ocean and not as close to the hills as other surrounding neighborhoods, but Caltech and NASA’s Jet Propulsion Lab make their home here, undoubtedly pushing up incomes, rents, and prices.

I’ve mapped each ZIP code in Los Angeles and Orange County by their one-year CAGR. If you hover over a ZIP code, you’ll get more info as well:

For those unfamiliar with Los Angeles, just know that the darker ZIP codes (indicating higher price growth) are mostly around the ocean or the hills.

Should You Invest in Los Angeles?

There are certainly easier markets to invest in, with lower barriers to entry, landlord-friendly laws, more growth, and in some markets, even higher appreciation (see this red state versus blue state breakdown I conducted for more info).

I want to repeat: If we’re just looking at the percentage growth of the median price, certain red state metros have beaten the Los Angeles metro over a 20-year period. I’ll reuse a map I previously published to further emphasize the point:

Price is a function of supply and demand. Los Angeles will continue to have limited supply. But demand for red state metros appears to be growing at such a higher rate than LA that prices have been pushed up more, regardless of how much room for supply there is. You can only build so much in a period of time.

For all the headwinds I’ve pointed out, I think the golden era of Los Angeles residential real estate appreciation is behind us, with one huge, glaring, millionaire-making exception: world-class neighborhoods.

Los Angeles Is a Hyperlocal Game

The metro still has arguably the best year-round weather on Earth (unless you like a little more humidity, in which case you’ll love San Diego, or you prefer a slightly cooler climate, in which case you’ll love the Bay Area). And LA is still one of the world’s cultural hot spots as America’s epicenter of film and music. 

People will pay a lot of money to live here, especially in a nice area with low crime, good schools, and close access to trendy restaurants and outdoor amenities like the hills or the ocean. There aren’t too many neighborhoods with all these qualities relative to the total housing inventory in LA. It’s no surprise that they appreciate in value the most. 

I’m calling these “world-class” locations (“luxury” locations also works), as they have some of the greatest combinations of qualities you find in America (if you factor in weather, care about being near the ocean, and appreciate racial and cultural diversity, which not all neighborhoods with good schools have). 

However, the barrier to entry in LA is extremely high. At the time of writing, in 2025, the median home price is about $1 million. And that’s just the median. There really aren’t any properties in decent neighborhoods worth less than $1 million. 

If you’re purchasing a home here, you are likely already in the top 1%. If that’s the case, you can afford to overcome the massive regulatory hurdles of investing in Los Angeles.

This leads me to the conclusion: Is investing in Los Angeles worth it? It depends on what kind of investor you are. The simple buy-and-hold investor is likely better off elsewhere, unless you secure a property in an A-class neighborhood (or an A-class property in a B-class neighborhood). But if you are an active and local fix-and-flip or BRRRR investor, you’ll need to keep a close eye on your hyperlocal neighborhood market. 

Fortunes are still being made with Los Angeles real estate. I’m just not convinced the rewards outweigh the risks relative to other markets due to the overall economic headwinds—unless you invest in one of the world-class neighborhoods here.

NOTE: This article was written from the residential real estate perspective, not commercial. Let me know in the comments if you’d like an analysis of Los Angeles CRE.