February 19, 2018

Rents Fall In The Face Of An Inventory Glut

A report from CNBC. “Scan the downtowns of the nation’s largest cities, and you are likely to see a staggering array of cranes. Most of them are helping to build luxury apartment buildings. In fact, multifamily construction is now at a 40-year high; the trouble is, developers are putting up the wrong kinds of buildings. The luxury market is largely overbuilt, while there is a shortage of affordable rental housing, and developers are hamstrung by the now record-high cost of construction.”

“Developers say they simply can’t afford to add anything but luxury. ‘The two-by-four doesn’t care whether it’s in a luxury building or in an affordable building. It costs the same,’ said Toby Bozzuto, CEO of The Bozzuto Group, a multifamily management and development company operating in the Northeast and Mid-Atlantic. ‘The differential of course, is the rent and there’s a huge disparity in high-end rent versus low-end rent. So the issue is for us to develop an economically viable, feasible project, it has to be, by its very nature, high end. The rents have to be high to support the cost.’”

The Longview News-Journal in Texas. “A shortage of affordable housing rentals in Longview is prompting developers to propose projects to address the need and seek federal tax credits to make them work economically. Others agree a demand exists for apartments for renters with moderate incomes — and that the market is saturated with higher-end apartments. Karen Holt, housing navigator with the East Texas Aging & Disability Resource Center, said in a recent statement that data show a majority of families in the area are paying ‘well over’ the customary 30 percent of their income toward rent or mortgages. The median household income in Longview is $49,013 a year, according to data from Longview Economic Development Corp.”

“Holt also said the supply of conventional or high-end properties is far greater than current demand. Teri Elliott, manager at Saddle Brook Apartments on H.G. Mosley Parkway, concurred. ‘We are so overbuilt right now,’ she said. ‘Because of it, the average occupancy in Longview is 85 percent.’”

The Colorado Real Estate Journal. “While outsized rent hikes and affordability concerns have dominated the headlines in Denver’s apartment market in recent years, our robust apartment data set reveals that the environment has become materially more favorable to renters in several respects over the last few years. Concessions and discounts have become far more prevalent in Denver over the last few years. Concessions were almost nonexistent in Denver a few years ago, but have normalized alongside substantial levels of new development.”

“Also pictured in the chart is Nashville, Tennessee, which saw concessions rise from almost nonexistent levels a few years ago to one of the higher rates in the country today. The uptick in concessions in Nashville promotes the case that the metro may have been overbuilt. Lofty discounts also are common in Cherry Creek, Glendale and Denver’s pricy southeast suburbs (such as Lone Tree), all of which have experienced substantial levels of development in recent years.”

“Concessions are likely to further escalate in 2018. In January, 27 percent of all rents were tied to a rent concession, up from a peak of 23 percent during the prior winter leasing season. That uptick coincides with Denver’s next supply wave, which kicked off in earnest during the second half of 2017. This supply wave will continue for another two years, as nearly 10,000 new apartments are expected to deliver in each 2018 and 2019.”

From the Arizona Republic. “Valley apartment rents have climbed about 20 percent since 2014, while wages in the Phoenix area are up by less than half that much. Longtime Arizona economist and real estate analyst Elliott Pollack recently told a group of builders what the Valley needs to continue to grow is more ‘worker apartments’ that people can afford. It’s not that there a lack of apartments in the Phoenix area, particularly new ones. Almost 17,000 were recently built, are underway or planned.”

“But most of the new ones are upscale apartments with rents above what the typical Valley worker can afford, even with more than two weeks of their earnings. Also, some affordable apartments were torn down to make way for new pricey ones. There is some hope for struggling renters. If too many new Valley apartments go up and don’t fill up, rents could fall.”

From Inman News on New York. “Average rental prices in Manhattan and Queens fell in January, and prices in Brooklyn rose modestly, as New York City landlords aggressively pushed a record number of concessions in the face of a citywide inventory glut, according to a new report. In Manhattan, where average rent for a two-bedroom apartment fell 5.3 percent—from $5,040 in December to $4,771 in January—as many as 49.3 percent of all new leases signed included hefty owner-paid concessions, up from 36.2 percent a month earlier, according to the report by Douglas Elliman.”

From the Alaska Star. “Anchorage zoning officials listened and changed course after hearing from Eagle River residents opposed to a plan that would have opened the door to a heavy-density housing development near downtown. Eagle River resident Darryl Parks, who has worked in concert with Quimby and others, said they want to make sure future development is in keeping with plans agreed to in the 2010 Eagle River Land Use Plan.”

“Eagle River already has seen a glut in the apartment-condo-townhouse style housing market, he added. Relatively recent developments are all the same type of units proposed for Carol Creek, Parks said. ‘Both are on the market and are in the process of being developed for the last 3-5 years. And they have not sold out. Here we are and yet the market isn’t there for it,’ Parks said.”