April 3, 2016

Low-End Rents Are At Least Doubled Now

A weekend topic on rents and the housing bubble starting with the Kansas City Star. “Trendy new apartment towers and historic building conversions in downtown Kansas City are in the limelight, but the metro area has experienced a quieter — and no less significant — boom in apartment complex construction throughout the city and suburbs. About 3,000 new residential units are in the works for the city’s core. At least that many units opened last year alone in just the largest new metrowide apartment developments. This surge, particularly in upscale and ‘lifestyle’ complexes, mirrors a national trend toward amenity-rich apartments.”

“Apartment developer Dana Gibson raises an important point about the development surge: ‘We do need to diversify our product. We can’t price ourselves above the budgets of the restaurant and back-office workers who are priced out of the market if average rents get too high.’”

“In fact, low-end rental rates also have surged in the last couple of years, and a recent national study showed that affordability is a big stumbling block. Low-end rates of $350 a month a few years ago are at least doubled now, and even that isn’t enough to entice developers to build ‘affordable’ multifamily housing. Sufficient returns on investment come from higher-end properties.”

“The preponderance of high-end apartment developments, like the area’s 10 biggest developments completed last year, could make for luxury-level vacancies if rent increases continue to outpace wage growth. ‘The imbalance of households who can afford a luxury rental in comparison to the number of luxury projects currently under construction or planned’ could be a concern, said Daniel Kann with Valbridge Property Advisors in Overland Park. ‘The affordable renter segment is much larger in terms of population and is being overlooked in terms of new construction.’”

Boston.com in Massachusetts. “Maybe all the cheerleading for more new apartment and condo construction is paying off after all. The Boston area saw a 42 percent increase in the number of building permits issued in 2015 for new apartments and condos, according to CMD Construction Data. More multifamily units were cleared for takeoff last year than in any year since at least 2000, beating out the last peak year of 2005. The surge in new construction comes with the Boston area in the throes of a major housing shortage that has driven rents and prices to ever higher levels.”

“Builders putting up new condo and apartment projects took out permits for 10,400 new units last year, CMD reports. That blows past the previous peak of 9,100 new building permits set in 2005. The Boston area came in fourth last year in the number of building permits issued for multifamily units, with only New York, Miami and Dallas posting higher numbers. New York more than doubled the number of apartment and building permits it issues last year, to 75,000. Miami’s numbers rose to 16,000, up from 10,000 in 2015, while Dallas notched a 54 percent increase, awarding 28,000 building permits last year for new apartments and condos, according to CMD.”

The Independent Record in Montana. “Missoula has a serious housing affordability problem and it’s a seller’s market right now, according to the Missoula Organization of Realtors’ 2016 Housing Report. Median family incomes in Missoula range from $43,560 for a single person to $62,220 for four people, but it would take an income of more than $80,000 to afford a median-priced home with a 4 percent down payment, according to the report.”

“It is generally accepted that no more than 30 percent of a household’s gross monthly income should go toward housing costs, according to Jim McGrath of the Missoula Housing Authority. Only 27.2 percent of Missoula homeowners are in that position, but 54.3 percent of renters spend more than a third of their income on housing. In Missoula, renters make up 52 percent of all occupants. ‘If you have to pay more than that, you have less for transportation, education, food, savings — those kinds of things,’ he said. ‘That’s an industry standard.’”

“To purchase a home without having to also pay mortgage insurance, buyers must also come up with a 20 percent down payment, McGrath said. ‘In Missoula, a lot of people are not providing a 20 percent down,’ he said.”

“Paul Burow of Professional Property Management said that the average cost of rent increased for nearly every type of unit in Missoula in 2015. ‘The No. 2 question I get asked is if rent prices are ever going to come down or stabilize,’ he explained. ‘The answer is, ‘I doubt it.’ The average cost for a one-bedroom apartment in Missoula is $664 per month, according to data collected from 27,000 units over the course of a year. A two-bedroom apartment costs $767. ‘Everything getting built now is in that $900 to $1,100 range, so that raises the average price,’ he noted.”

The Los Angeles Times in California. “Looking to cash in on a booming real estate market, Los Angeles property owners are demolishing an increasing number of rent-controlled buildings to build pricey McMansions, condos and new rentals, leading to hundreds of evictions across the city. More than 1,000 rent-controlled apartments were taken off the market last year — a nearly threefold increase since 2013, according to a Times analysis of housing data. Evictions from such units have doubled over the same time.”

“Across L.A., more than 20,000 rent-controlled units have been taken off the market since 2001, city records show. The removals peaked during the housing bubble and then bottomed out in the recession, but they have risen significantly since then. Many of the recent evictions have been carried out by developers who have purchased the buildings with the intention of demolishing them to construct pricier housing. At least 51% of the L.A. properties removed under the Ellis Act in 2013 had been purchased within the previous year, according to a Times analysis.”

“Los Angeles officials are also investigating claims that some landlords are evicting tenants to convert apartments into illegal short-terms rentals, such as Airbnb.”

Fox 5 San Diego in California. “According to a Rentonomics 2016 National Apartment List Rent Report, rents nationwide have risen significantly over the past year and continue to go up. San Diego is shown as 11th highest on the list of most cost-burdened renters. As home prices and the cost of rent continue to climb, working-class families are struggling to keep pace and many are slipping into poverty.

“In San Diego County, more than one in five residents, or about 23 percent of the population, lived in poverty, according to the report, which looked at a variety of living costs, including filling up the gas tank, food and healthcare. On average, rent is costing people 75 percent or more of what they get paid.”

The Argus Courier in California. “A report from mortgage research firm HSH ranked the San Francisco metro area, which includes the North Bay, as 4th on a nationwide list of housing markets that have recovered the most. The survey showed that the Bay Area’s housing market is 41 percent above its peak value before the bubble burst. Factored heavily into that statistic, however, is the emergence of the tech industry and abundance of high-paying jobs. But those not involved in the tech industry — teachers, firefighters, nurses and other laborers — have watched as housing costs have risen much faster than median wages, forcing many to look for housing outside of Petaluma.”

“That reality was brought into focus recently as eight Petaluma families were served eviction notices at their Walnut Street apartment complex. The tenants said a new owner raised their rents by about $700 shortly after buying the apartment complex in mid-December. Tenants were then served 60-day notices to vacate their apartments on Feb. 2, even if they were willing to pay the higher rent. The move underscores a growing trend in the local resurgent housing market, where investors have been snapping up apartment buildings and raising rents.”

“‘We are seeing unprecedented wipeouts of low-income tenant complexes — often substandard, and often immigrant-occupied,’ said Ronit Rubinoff, executive director of Legal Aid of Sonoma County, a program that offers free legal advice to renters. ‘Tenants are being turned out all at once in order to raise rents and in many cases, people are being issued eviction notices on top of huge rent increases.’”

“Rents have climbed 40 percent in the past four years, according to Real Answers, a Novato real estate research firm.”