Tuesday, August 19, 2008

Downward Pressure on Rents

by Calculated Risk on 8/19/2008 08:41:00 PM

Here are a couple of articles on apartments (hat tip Les):

From Tammy Joyner at the The Atlanta Journal-Constitution: As more share space, apartments take a hit

In these tough economic times, some metro Atlantans are bunking with family and friends, doubling up in rental apartments, homes or condos.
...
The anemic housing market should be a boost to Atlanta’s apartment market. But the emerging shift in living arrangements is creating an unusual set of challenges for the industry.

Leasing agents are having to contend more with the “shadow market,” an industry term that refers to the glut of unsold homes, condos and townhomes that have become rental property.
And from Kerry Fehr-Snyder at The Arizona Republic: Apartments offering freebies, other deals
Renters can thank the struggling real-estate market and its deflated housing prices, increased foreclosure rates and depressed rents on single-family homes, condominiums and apartments. Add to that the condominium-conversion flop, which has led to condos reverting to rental apartments.
...
With a glut of cheap rental homes on the market, apartments are facing more competition than ever and many are sitting with empty units as vacancy rates soar.

That has prompted 68 percent of apartment landlords to offer concessions worth several months of rent, [Pete TeKampke, vice president of investments for Marcus & Millichap] said.
...
During the Valleywide condo craze, 30,616 apartment units were converted or sold to investors who planned to convert them to condos, TeKampke said. By the middle of last year, 18,000 units had reverted to apartment rental units and many investors had scrapped their conversion projects.
Even though the homeownership rate has fallen sharply, the rental vacancy rate is still at 10.0%, just below the all time record of 10.4% in 2004.

A combination of people doubling up (happens in every recession), condo reversions, more apartment construction (the lone bright spot for housing starts), and some homeowners renting their homes instead of selling, has kept the rental vacancy rate high even while the homeownership rate has fallen.