Rents Keep Rising, Even as Housing Prices Fall
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, Texas, 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.
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.
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.
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.’ ”