Rents Go Through The Roof
Students and elderly hit hard as apartment demand nationwide reaches 'all-time high.'
Earlier this summer, a tent city sprang up mushroom-like on the campus of Stanford University. Students were angry and protest was in the air.
But it wasn't a rebirth of political radicalism at the prestigious West Coast university. Rather, students couldn't find affordable places to live, so they decided to camp out to make their point.
Only a step behind America's well-publicized home ownership boom is an increasingly tight and expensive rental market that is pinching college students, the elderly, and many of the other 35 million American households that live by lease instead of by mortgage.
Like politics, housing conditions are intensely local. But renters are lately sharing a common bond of fewer vacancies, higher prices, and choosier landlords from San Francisco to Boston and Minneapolis to West Palm Beach, Fla.
"I've never seen anything like this in 10 years in the business," says Boston real estate broker Roy Schwartz. "There is no availability, and prices are soaring."
Demand for apartments is "at an all-time high," according to the most recent survey from M/PF, a Dallas-based research firm that tracks the rental market nationally.
The result: an average occupancy rate nationwide of 95 percent this year, a figure meaning essentially "full" in many cities. The same survey reported rents rising, on average, at a brisker-than-inflation rate of 4 percent. In many markets, rents are jumping at twice that rate.
While conditions are expected to remain tight for the next year, the strength of the rental market has attracted new investments, and that's generating more construction. The law of supply and demand should tilt the market back toward renters - though gradually - experts say.
Probably too gradually to help Estelle Tenny of Seattle. Having just tightened her belt to cope with a $90-a-month rent increase last year, Ms. Tenny, a retiree, wonders how much longer she can afford the one-bedroom apartment she has occupied for 25 years. Anticipating a more dramatic leap next year to $995 from her current rent of $695, she muses: "If I quit eating, that might make it affordable."
Many of the conditions propelling Seattle's rental market are common to the nation as a whole. An expanding economy, particularly in the technology sector, has added 50,000 new jobs in the Seattle area over the past year. Many of them are going to young adults, a prime renter population. At the same time, new rental construction in that city has only recently picked up from its sluggish rate of the early 1990s.
"We're still building only half of what we really need," says Mike Scott of Dupre & Scott Apartment Advisors Inc. in Seattle.
A dearth of construction has also left renters in Minneapolis with fewer choices. In the early 1990s, the city saw "virtually no new rental construction," according to Mary Bujold of Maxfield Research in Minneapolis. While there is some building now, the legacy is a 98 percent occupancy rate and rents that are rising at a 6 percent annual clip.
Occupancy is at historically high rates in numerous markets, exceeding the nationwide average of 95 percent in West Palm Beach, Chicago, Pittsburgh, Houston, Newark, N.J., and Washington, to name a few.
Generally, construction was slow earlier this decade because of the weak economy and local growth policies, including resistance to high-density development, that shunted investments elsewhere, say housing experts.
Nationally, some 250,000 new rental units are needed each year to keep up with increased demand and the loss of apartments by either demolition or conversion to other uses. Construction currently under way is just about at that level. That leads Jack Goodman, economist with the National Multi Housing Council in Washington, to conclude the rental industry is avoiding the wild swings of its recent past - from a glut of new units built during the mid-1980s to the shortage of the early 1990s.
Yet, the ranks of renters are still likely to grow faster than the availability of new units because of demographic shifts in the US population. So-called "lifestyle" renters, those who can afford to buy but choose to rent because it can mean fewer hassles, may grow as some aging baby boomers choose to scale down as their children leave home. But those very same children, under age 25, are themselves part of an expanding segment of the population and are inclined to be renters.
Widely regarded as the toughest rental market in the country, the San Francisco Bay Area is replete with rental horror stories.
Hagai Lalazar recalls lines of 100 applicants for a studio apartment in Berkeley, priced at $800 per month. Rent control is being lifted in that city, and Mr. Lalazar has given up on finding a studio. Instead, he'll take a room in a house for $450 a month.
Back to campus
Shell shock has been replaced by resignation for Stanford engineering student Josh Stanpfli. As he stares at a computerized listing, up pops an ad for an unfurnished one bedroom for $1,000.
"I was looking to go a little cheaper than that," he says. "I've pretty much given up on a one bedroom."
The rental market is so tight in the neighborhoods surrounding Stanford University that graduate students are flocking back to campus, sometimes tripling up in student housing.
The university, for the first time, has begun leasing apartments off campus, which it subsidizes for students. What's more, it has established "crisis grants" to help students hit with sudden rent increases.