A Few Random Questions About the Latest Rent Report

Renter Nation!

The Wall Street Journal reports that rents are up and vacancies are down across the United States:

Apartment landlords are enjoying rising rents and falling vacancies.

The average effective rent, the amount paid after discounting, was $997 in the second quarter of the year, up from $974 a year earlier, according to a report scheduled for release Thursday by Reis Inc., which tracks leasing data for 82 markets. Second-quarter rents rose in all but two markets.

Yay for landlords, I suppose. And yay for me, for having predicted the whole Renter Nation thing several months back. But there are some unanswered questions that naturally come to mind. Let’s ask them, shall we?


The Silence of the Lambs

The first thing that just jumped out at me is that the report came from Reis, Inc. and from CoStar. They’re fine companies, and they’ve been active in multifamily arena for years. But… one would think that NAR had some sort of position, some sort of information, on rental activity.

Note that the report is from 82 markets; it’s a lot of markets, and for a national picture, that’s probably enough. But it isn’t anywhere close to the type of coverage that NAR could produce, if its agents were doing more on the rental front.

Yes, yes, I know that most REALTORS don’t even want to get involved with rentals, because of the low fees involved (except in special markets like NYC and San Francisco). But boy, it makes one wonder why the residential real estate data industry has been so slow to pick up on rental activity.

If the future of residential real estate will be dominated by rentals (as I believe it will be, barring huge political changes in the country), then NAR, the various MLS’s, and real estate companies might want to get on the ball of doing something about leasing, vacancy rates, and the like.

Where Are These Renters Coming From?

Another question is where these renters are coming from. As the article notes, vacancies declined the fastest in secondary/tertiary cities: Charleston, WV, Greensboro/Winston-Salem, NC, and Richmond, VA. What gives? Why those cities, and not the traditional hotspots of renters?

The article mentions that college graduates leave over the summer and descend on cities in search of jobs. Okay, so should we assume that the Big Cities are no longer the destination for young college grads? Or are young college grads failing to find jobs at all and simply moving in with their parents?

How many of the renters are former homeowners, who have either sold and moved on, or been foreclosed on?

Is there any data on whether the renters are local or from out of town? Meaning, do we think that there are patterns of mass migration from expensive, high-rent cities like San Francisco into low-rent cities like Wichita, or is this all just random?

Where’s the New Housing Going Up?

The article also mentions that many more units will be coming online:

But there is new construction in the pipeline. The CoStar Group, a Washington, D.C.-based real-estate research firm, expects about 22,500 units to be added this year, followed by 94,600 in 2012 and more than 109,000 in 2013.

Okay, that’s cool. But where are these units being built? Are these luxury rentals going up in downtown Bethesda, or in swank neighborhoods of Manhattan? Or are these low-cost garden apartments going up across Richmond, VA? The answer would give us an indication of what sorts of jobs are being created and where.

Furthermore, it seems to me that the sale market is probably impacted by the rental market. All of the rent vs. buy analysis done by companies like Zillow and Trulia suggest a connection. And in this economy, I have to think that brokers and agents must look at rentals as a substitute good for home purchases. Which means they have a vital interest in knowing where these rental units are being built.

Section 8 Anyone?

Finally, I’d like to know what percentage of the roughly 225K rental units coming on the market by 2013 are Section 8 low income housing. After the foreclosure deluge (which is still going on, of course), it seems to me that demand for low-income housing will be skyrocketing. (My reasoning: most foreclosures are the result of unemployment, ergo, those who have lost their homes are likely unemployed, semi-employed, or struggling financially, ergo, low-income housing demand will rise.)

Considering that we’re at 9.2% unemployment as of June, 2011, what percentage of these rental units are in places, and at price points, where the demand for low-income housing can be met? If there is a mismatch, how will the market correct to meet the demand for low-income housing?

I can’t imagine waves of homelessness throughout places like Arizona, California, and Florida… so where will those people live?

Any Other Questions?

I have to get on a call, so will end here. But what other questions do you have regarding the state of rentals in America? Any insights in your local market? Any thoughts on whether existing infrastructure of real estate can be more helpful to the coming Renter Nation?



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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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2 thoughts on “A Few Random Questions About the Latest Rent Report”

  1. There’s no question that the demand for rentals is way up and the supply is way down. I’m certainly seeing that in OC.  I think the challenge will be that for those that have faced foreclosure and/or unemployment, a tight supply and a highly competitive rental market certainly poses challenges for that type of tenant.

    I am really interested in seeing the industry track some of the very things you are mentioning here, but with more than just an eye to the rental market.  I’d love to see more information about the buyer profile of today.  There’s lots of speculation about the impact of the Gen Y buyers and their potential to impact the market recovery.  I’m seeing a tremendous number of cash buyers, many foreign.  But it would be helpful to have this go beyond anecdotal stories and see NAR or the MLS find a way to collect this data, mindful of privacy.  This kind of data in the aggregate, and by market areas, would have a tremendous impact on the marketing decision made by a brokerage or an individual agent.

    I can collect financing versus cash, fha info, and similar closing info from the MLS, but what I think would be really useful is to know more about the actual demographics of today’s buyer. 

  2. This could be due to the economy as a whole and possibly that more people cannot come up with the funds to pay for the down payment and on a home and then the closing costs as well. It could also be fear that the housing market will take another deep hit and if they buy, they will find themselves in an upside down mortgage like so many others.

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