REALITY CHECK: US HOME FINDERS SAY RENTALS BIASED UPWARD
By Gary Rosenberger
NEW YORK (MktNews) - Real estate industry executives say price pressures for rental properties continue to be biased upward as conversions into "for-sale" properties drastically reduce supply.
In fast-growth cities rents are likely to be pushed up by political barriers aimed at reducing suburban sprawl, undermining the balance between new construction and new population, they say.
Also favoring landlords above renters are higher interest rates, which are reducing the lure of home ownership and forcing people into a more crowded rental market, they add.
But one Cleveland publisher of an apartment guide says that Y2K has been responsible for some softening of her market during the fourth quarter.
In the St. Louis area, higher interest rates increased the demand for rentals amid a greatly diminished supply, said Lavette Orr, director of destination services for Apartment Search in the St. Louis suburb of Clayton.
"Rental rates are definitely on the side of up," Orr said.
"When interest rates were low a lot of rental properties were rehabilitated and converted into luxury apartments and condos -- not many rental properties were built," she said.
"That means the average Joe can't come to Clayton and spend $400 or $500 a month anymore," she said.
Students who come to her office in search of rentals are faced with doubling up, not only because rents have been rising but because there aren't enough apartments available, she added.
Others living in about-to-be-converted buildings "are now facing a rental market for the first time in 15 years," she added.
The decision they face is either move into a $600 or $700 apartment or become a buyer of a $200,000 condo, she said.
Orr said a lack of supply is being exacerbated by the number of new businesses moving into new commercial buildings in the area, which promotes further population growth amid a tightening real-estate market.
"Rentals, which a year ago were $600 are now about $25 or $50 a month higher, even among apartments where there hasn't been a whole lot of upkeep," she said, adding that vacated apartments are likely to see the brunt of those increases.
In the Southwest, political pressures may imperil the balance between new construction and population growth, said Ed Thach, president of American Investment Management and Apartment Locators in the Greater Phoenix metropolitan area.
"Apartment (rental) prices have remained fairly stable because there's a lot of new product that has been built and a lot of new people still coming in," Thach said.
Thach said that while rentals are up by at least 50% since 1992, very little of that increase has occurred over the past year or so.
"There are a few communities in the outlying areas like Scottsdale, Tempe, Chandler and Glendale where there are relatively fewer apartments and demand is quite high," he said.
But he added that "overall rates are stable" primarily because there are no geographic constraints to growth. "Cities like Phoenix and Houston are flat as pancakes -- there is plenty of room to build, versus New York City and San Francisco where you have geographic barriers like water," he said.
But he added that two things can throw a wrinkle into that equation -- politics and interest rates.
"In Phoenix, the political climate has been pro-growth -- but when you grow so big there's always a backlash. Another group gains the momentum saying the city is growing too fast, is too big and the quality of life is deteriorating -- that we're starting to look like Los Angeles," he said.
Anti-development sentiment would likely increase the pressure on available real estate and prompt rent increases in the future.
"Rising interest rates also make home buying less affordable and increase the demand for rentals," Thach said.
"I would suggest that next year rents will rise again, assuming that people will continue to come in the same numbers that they have in the past," he said.
A Boston publisher of apartment guides said the supply demand equation presently favors landlords in the extreme.
"Landlords are raising rents as high as they can," said the publisher, who asked not to be named.
"I've seen apartments that went for $1,200 a month last year now go for $1,600," he said. "There is a huge demand in Boston for apartments."
And that pressure increases as more people compete for a very limited supply of living space, he said.
As with many other cities, the strong local economy transformed rental properties into condominiums for a public intent on ownership, he said.
"The good economy also meant that young people could afford more and required fewer roommate situations" eating up the supply of available rentals, he said. "Boston is also the biggest college market in the country and enrollment is going up."
"So there's a lot of pressure for prices to go up and they've been shooting up," he said.
Similar issues of too many folks chasing after too little supply also applies to Atlanta's rental market, said Ellen Burnstein, principal consultant for Dale Henson Associates, a local real-estate consulting firm.
"Rents are still going up" because "the trend of apartments being converted into condominiums continues," she said.
"As lower interest rates created more demand for 'for sale' units, people with money have been buying them," reducing the available stock of rental units, she said.
"Occupancy rates are pretty strong and people continue to move in to the downtown areas," she observed.
A bit of softness was detected in the Cleveland and Northeast Ohio market, where the corporate housing market softened of late primarily because, again, of issues associated with Y2K, said MaryAlice Marco, publisher of the Greater Cleveland Apartment Guide.
"Right now we have higher supply than demand due to interest rates still being in a place where more people are buying homes than renting them," Marco said.
"We're seeing a softening in Class A properties because they're being more affected by job transfers out of the city," she said. "There's been a significant amount of Y2K work in Cleveland and corporations are now starting to downsize and people are moving on."
There's also a Millennium scare that is having some repercussions on the housing market, she added.
"People are in a holding pattern to make sure that there is a dawn after the Millennium," she said.
However, Marco said that despite all those handicaps, she expects landlords to try to push through 5% across the board increases after the first of the year -- the traditional time for raising rents.
The Labor Department is scheduled to release November CPI data Tuesday at 8:30 a.m. EST. October CPI rose 0.2% after a 0.4% rise in September.
Editor's Note: Reality Check stories survey sentiment among business people and their trade associations. They are intended to complement and anticipate economic data and to provide a sounding into specific sectors of the U.S. economy.
See also:
fullcoverage.yahoo.com
articles on Santa Clara County building housing for teachers
In Tough D.C. Market, Landlords Rule
washingtonpost.com
You can probably find a lot more examples of housing inflation. Use the search term "McMansion", which is the common derisive term now for expensive homes spaced five feet apart on small lots.
I've also seen apartments start charging $ 200 - 300 a month for pets on top of the normal rent. This is in addition to the security fee. |
