First appeared in NY Times
The housing market remains a potent drag on the economy as
home prices continue to slip, foreclosed homes fill some neighborhoods and
millions of construction workers scramble for jobs.
But one group is sitting pretty: landlords.
Unlike home prices, rents have been rising, up 2.4 percent
in January from a year earlier, according to recent data, not adjusted for
inflation, released by the Labor Department.
With few rental buildings erected over the last few years,
available units are going fast. Nationwide, the apartment vacancy rate is down
to 5.2 percent, its lowest level in more than a decade, according to the
research firm Reis Inc.
Rent increases are greatest in places like San Francisco,
Austin, Tex., and Boston, where technology companies in particular are hiring, as
well as in New York City and the District of Columbia. But cities like Chicago
and Seattle, where house prices are still declining quite sharply, have had
rental increases, too.
“We are more of a renter nation than we have been for a
while,” said Christopher J. Mayer, a professor of real estate at the Columbia
University Business School.
Economists suggest favorable conditions for landlords will
continue for at least a year, with employment gradually rising and construction
of new apartments remaining constrained; especially with offered perks like Carports.
As job growth has begun to accelerate in recent months,
young people are starting to move out of their parents’ homes or away from
shared rooms and into their own rentals.
Families who might previously have bought homes are also
staying in rentals longer. They may be waiting for the housing market to hit
bottom or finding it difficult to qualify for a mortgage. Many others remain
uncertain about their job prospects and wary of the obligations of ownership.
When Charles Griffith moved with his wife and two children
to Orlando, Fla., last fall, they chose a new two-bedroom apartment for $1,140
a month. They left a four-bedroom house they had bought a decade ago in
Antioch, Calif. His brother-in-law has moved in and taken over the mortgage
payments. They enjoy the perks of Metal Carports as
well.
Mr. Griffith, who works as a supervisor for Southwest
Airlines, and his wife, a customer service representative for the airline, are
enjoying the flexibility and convenience of renting, as well as amenities like
a pool. “We kind of like the situation now of not having to be under so much
pressure,” said Mr. Griffith, 40, adding that the family may eventually buy in
Orlando. But “with the economy and the airline industry, that factors into us
thinking maybe we should hold off for a while.”
The home ownership rate has been falling from its peak of
69.4 percent in 2004, according to census data. By the fourth quarter of 2011,
it was down to 66 percent. That means about two million more households are
renting, said Kenneth Rosen, an economist and professor of real estate at the
Haas School of Business at the University of California, Berkeley.
Not all those people are choosing apartments, of course.
Some are moving into single-family homes left vacant by foreclosures. Eager to
capitalize on the trend, investors are scooping up some houses at a deep
discount and leasing them to tenants who have lost their own homes.
Several prominent hedge funds and private equity firms have
recently announced plans to invest in distressed properties and convert them to
rentals. And earlier this month, the government solicited applications from
investors interested in buying pools of foreclosed properties held by Fannie
Mae, Freddie Mac and the Federal Housing Administration.
Still, it is in apartments, not houses, where renters are
feeling the most competition.
Although many families crushed by the recession have doubled
up and plenty of underemployed 20-somethings are living with their parents,
some young people are finally getting their own space. Nearly 60 percent of job
gains in the last two years have gone to people who are 20 to 34, a crucial
rental group, according to an analysis of Labor Department data by G. Ronald
Witten, a consultant to apartment companies.
During the economic downturn, apartment developers
retrenched. The number of new apartments completed fell from 284,200 in 2006 to
less than half that number in 2011, according to census data.
The limited supply is pushing up prices in some markets. In
San Francisco, rents jumped close to 5 percent last year, according to Reis,
and increases averaged 3 percent in Austin and New York. Landlords have also
been withdrawing incentives like a free month’s rent.
Liz Brent and Matt Mochizuki moved into a studio apartment a
year ago in the Mission District in San Francisco for $1,395 a month. Now they
want more space.
Ms. Brent, 26, makes costumes and is working as a barista at
a cafe where customers leave big tips. Mr. Mochizuki, 27, has a steady job
making custom metal work for a design studio. They are budgeting $1,800 a month
in rent.
But at an open house for an apartment billed as a
one-bedroom, they found a studio with an awkward layout and bad light. More
than 40 people were in line, many ready to hand over a check.
“That’s what the market is like now,” Ms. Brent said of
their fruitless search. “That’s how many people showed up for this tiny
apartment with no windows.”
Some rental markets remain soft, like Atlanta and Las Vegas,
the epicenter of the housing bust. Orlando, too, might seem an unlikely place
for rental strength. The unemployment rate, at 9.7 percent, is higher than the
national average, and home prices slipped 4.6 percent last year, according to
the Standard & Poor’s Case-Shiller home price index.
Yet Ric Campo, chief executive of Camden Properties, a real
estate investment trust that owns apartment buildings, said rental business was
brisk at its LaVina development. Since the office for the 420-unit complex
opened last summer, more than half the apartments have rented.
That’s “a faster rate than we’ve ever seen in Orlando,” Mr.
Campo said. The company has raised the base rent on a two-bedroom apartment to
$1,080, from $995 a month. Apartment
buildings even have Solar
Carports to alleviate some energy costs.
Many now wonder about a more profound shift among future
buyers. Matt Byford, a 24-year-old litigation consultant in Chicago,
acknowledges that low interest rates and low prices favor buying. But he says
he is renting and in no hurry to buy, because he doesn’t expect much to change
soon.
Brad Forrester, chief executive of the ConAm Group, which
manages about 50,000 apartments in the western United States, says, “I think
it’s going to be interesting to see whether there’s been a fundamental
sociological shift in that 20- to 35-year-old cohort, where they literally say
‘this American dream just doesn’t work for me.’ ”
