The Housing Bubble

A report from Ithaca.com on New York. “Recent trends show the seemingly bottomless demand for student housing might have actually met its bottom, or is at least approaching it. ‘We are hearing the same complaints and it is getting stronger than it has in the last few years,’ Tompkins County Assessor Jay Franklin wrote in an email. ‘Ten years ago, I would say that vacancy wasn’t an issue at all. But starting 2 years ago, we started hearing more from landlords about vacancies they were experiencing. I think it will only get worse with the number of apartments we have being built, are in the planning stage, and also the projects that haven’t been formally announced yet.’”

“‘You’re definitely seeing a higher vacancy rate across the board because of all the new inventory that has come online,’ said Visum CEO Todd Fox. ‘Most of the growth has come in the student housing market. Because of all the new student housing beds being added to the market, we are starting to see price compression in rents [...] You cannot deny how it’s becoming increasingly difficult to lease apartments and how it’s taken significantly longer to get buildings rented. If you don’t think there is softening in the student housing market you’re either delusional or uninformed.’”

“Fox did not respond to questions regarding the possibility of a student housing ‘bubble.’ ‘Real estate is like musical chairs,’ Fox said. ‘Each time a new building gets built, the less opportunity exists in the market. The difference in the real estate industry is that you don’t want to be the last one to grab the chair.’”

“Landlords Association of Tompkins County Vice President Brian McElroy confirmed that they are hearing constant stories of landlords having to reduce monthly rents significantly and, even after that, still struggling to occupy their properties. ‘A lot of landlords who are having a hard time renting their apartments. I know of several landlords who are sitting on empty apartments, who have taken their rent down to 2012-2013 prices who still aren’t able to fill their apartment. This year has been a lot softer than people have talked about.’”

“As development continues, the remaining chances to jump into the market grows ever smaller, Fox said. With that comes more anxiety that a developer who gets into the market too late will end up holding the bag, and quite a few unoccupied units, when demand is finally satisfied.”

From the Tennessean. “Robert Piraino was just starting to feel at home, six months after moving into one of Nashville’s newest luxury buildings, when an email arrived saying that a new owner is transforming the complex into part-time hotel rooms. Piraino was not asked to move out of the Olmsted in SoBro. Instead, he was told he may be soon living in a building filled with revolving streams of tourist neighbors.”

“Miami-based Newgard Development Group bought the six-story understated charcoal-colored building for $90 million last week. The group is now rebranding the building in partnership with Airbnb for a new home-sharing apartment community startup called Niido. Thousands of new hotel rooms are under construction at more than 100 new hotels. Those new buildings are expected to open their doors in the next few years across the greater metropolitan area.”

“‘Professional people live in this building. Now we’re going to have strangers coming and going,’ Piraino said. ‘One of their ads says: ‘It’s spring break all year-round at Niido.’ I don’t want to come home to a place where people don’t care and leave garbage everywhere. That’s not the community vibe I want to live in.’”

From Curbed DC. “The District’s top lawyer is notifying landlords who appear to lease apartments like hotel rooms that they may be breaking the law. D.C. Attorney General Karl Racine sent letters requesting information about short-term rental practices from 19 owners and managers of 33 multifamily buildings in the city suspected of running hotel-type operations. In a release, Racine’s office does not specify the landlords or their buildings, but says blocks of short-term rentals—usually advertised on vacation websites—are ‘concentrated in neighborhoods like Logan Circle, Dupont Circle, Capitol Hill, and Chinatown.’”

“Laws require businesses to provide adequate disclosures about the material terms of the goods or services they sell, and prohibit landlords from converting rent-controlled units into temporary accommodations, respectively. Racine’s office argues that operating rentals less than 90 days in length in apartment buildings is misleading when tenants are not made aware of the activity.”

“Public complaints about the disruptions that short-term rental guests can cause have also seen an uptick. In December, residents of a luxury apartment building in Logan Circle told the Washington City Paper that temporary visitors threw loud parties and clogged common areas, and that their landlord had not fully disclosed the extent of the activity before they moved in.”

“Residents of another luxury apartment building, along the H Street NE corridor, also told the paper in July that they had experienced similar issues, including ‘[drunk] interns launching fireworks off the roof’ and overtaking the building’s pool.”

From Bisnow. “Market forces in most cities are making it nearly impossible to build new housing that the middle class can afford — and the gap between subsidized low-income housing and high-end apartments is wider than ever. From coastal economic hubs to Midwestern industrial towns, cities have experienced rising rents that have not been matched by wage increases. For middle-class renters who cannot qualify for subsidized housing, finding affordable apartments on the market has become more challenging by the year.”

“While cost burdens for most renters have gone up, those with the means to splurge on an apartment have been presented with more options than ever. There has been a boom of high-end apartment construction this cycle, accompanied by a stagnant — and in some cases shrinking — supply of affordable, middle-class housing. Since the recession, the number of Class-A multifamily units, those commanding the highest rents, has grown to 5 million nationwide, up from 3.9 million, while the stock of Class-B and C units has remained virtually unchanged at 5.7 million, according to Fannie Mae.”

“Developers are often seen as a major cause of the problem, viewed as avaricious operators who only want to build luxury condominiums. The reality, developers told Bisnow, is far more complex. Their ability to build housing is stymied by the price of land, rising construction costs, few tax incentives and, ultimately, a lending environment that simply does not support workforce housing. When it comes to building housing, developers said, they don’t set the rent.”

“‘The reality is, the bank is saying, ‘If all else fails, we need to make sure we are not losing money,’ said André Bueno, the founder of Los Angeles-based real estate investment firm Bueno Group. ‘[They say] here’s where your rents need to be, and here’s the cap rate we are applying to the project.’”

From KFOR in Oklahoma. “Students at the University of Oklahoma are moving this week into student housing. However, not many are choosing the new luxury student apartments on campus. ‘Those residents halls not getting filled is a huge issue,’ said student Asher Nees. ‘When I saw that they were constructing them, I thought didn’t they just build two great brand new ones across from Headington, yes and I don’t think they can even fill those ones,’ Nees said.”

“The apartments have rates close to $4,000 for a two bedroom and more than $6,000 for a one bedroom with a bath, per semester. The apartments are only 70 percent filled - a waste of money, according to some students. The newest apartment, Cross, is only 28 percent occupied.”

From Williamette Week in Oregon. “Last week, WW wrote about luxury apartment owners using an approach to attract new renters: offering move-in freebies like Amazon gift cards, Visa check cards, six weeks free rent and yearlong health club memberships. Here’s how readers weighed in. PostMichael McKeeism: ‘What a brilliant idea: build unaffordable housing and then bribe potential residents with gift cards that transfer wealth to a company largely responsible for its home city’s housing crisis.’”

“Bobby Benson: ‘Or you know, they could build housing that people could afford and forget about the perks. Just a thought.’”