Tag Archives: Rental Housing

National Apartment Rents Stabilize As Small Cities Boom

After years of torrid growth that has far outstripped wages, national apartment rents have finally plateaued, climbing a scant 2.5% YOY to $1,371 in March, according to RentCafe‘s latest monthly rent report.

Interestingly, the hottest rental markets (Brooklyn, for example), have seen rents retreat from record highs as they grapple with too much development at the high end of the housing market.

Meanwhile, mid-sized cities like Sacramento, Colorado Springs and Tampa have seen strong growth. But by far the strongest growth has been recorded in small cities like Midland, Texas (famously the home of George W Bush) and Yonkers, New York. Midland saw rents increase by a staggering 29% over the past 12 months, while nearby Odessa recorded a nearly 40% rent increase. Meanwhile, Reno, Tacoma and Orlando are in the top ten fastest growing rental markets.

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Still, despite a slight year-over-year drop, Manhattan still has the highest average rent in the country, followed by San Francisco, which saw rents rise 2.4% year-over-year.

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Of the 250 cities surveyed by RentCafe, Wichita, Kansas had the lowest average rent at $632 a month.

Source: ZeroHedge

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Rental Insecurity: Survey Finds 1 in 5 American Renters Missed a Payment in Past 3 Months

A new survey conducted by ApartmentList.com recently found that Americans, despite historically low unemployment levels and surging stock indices which would both seem to suggest that ‘everything is awesome’, are having a very difficult time making ends meet.  Per the survey, some 20% of renters admit they were unable to make their monthly payments on time at least once over the preceding three months with the results being even worse among minorities and those lacking a college degree.

 
 
  • Analyzing data from Apartment List users, we find that nearly one in five renters were unable to pay their rent in full for at least one of the past three months. We estimate that 3.7 million American renters have experienced an eviction.
  • Evictions disproportionately impact the most vulnerable members of our society. Renters without a college education are more than twice as likely to face eviction as those with a four-year degree.
  • Additionally, we find that black households face the highest rates of eviction, even when controlling for education and income. Perhaps most troublingly, households with children are twice as likely to face an eviction threat, regardless of marital status.
  • The impacts of eviction are severe and long-lasting. Evictions are a leading cause of homelessness, and research has tied eviction to poor health outcomes in both adults and children. These effects are persistent, and experiencing an eviction makes it difficult to get back on one’s feet.
  • Performing a metro-level analysis, we find that evictions are most common in metros hit hard by the foreclosure crisis and in those experiencing high rates of poverty. Perhaps counterintuitively, expensive coastal metros have comparatively low rates of eviction, in part because strong job markets with high median wages offset expensive rents in those areas.

As ApartmentList notes, some 3.7 million Americans, of roughly 118 million total renters, have experienced an eviction at some point in their life.  Meanwhile, “rent insecurity” is even more prevalent with nearly 30% of folks making less than $30,000 per year saying they have difficultly making monthly rent payments.

3.7 million Americans have experienced eviction, with rental insecurity affecting nearly one in five.

Our Apartment List estimates show that 3.3 percent of renters have experienced an eviction at some point in the past, and 2.4 percent were evicted from their most recent residence. With an estimated 118 million renters in the U.S. today, we estimate that 3.7 million Americans have been affected by eviction at some point. If we assume that some share respondents fail to report informal evictions, this estimate is most likely understated.

While experiencing eviction is a worst-case scenario with dire effects, a much larger share of renters still struggle with some form of rental insecurity. Our analysis shows that 18 percent of respondents had difficulty paying all or part of their rent within the past three months. The issue is particularly acute for low-income renters, 27.5 percent of whom were recently unable to pay their full rent.

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Renters with just a high school diploma are more than three times as likely to have faced an eviction threat in the past year than those with a Bachelor’s degree.

Of those who did not attend college, 4.1 percent cited an eviction as the reason for their last move, compared to just 1.9 percent of those with at least some college education. This trend points to a broader issue of the housing market leaving behind less educated Americans. A recent Apartment List study showed that the gap in homeownership rates between high school and college graduates widened from 1.6 percent in 1980 to 14.9 percent in 2015.

A similar trend holds when broken down by income. Of those earning less than $30,000 per year, 11 percent faced an eviction threat in the past year, and 3.4 percent were evicted from their previous residence. In contrast, for those earning more than $60,000 per year, these figures are 3.1 percent and 1.5 percent, respectively.

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Meanwhile, households with children were found to be twice as likely to face an eviction threat, regardless of marital status.

Single parent households are at the highest risk, with 30.1 percent reporting difficulty paying rent within the past three months. However, married couples with children do not fare much better, with 27.2 percent struggling to pay rent. For those without children, the rates are 14.7 percent for single respondents and 13.3 percent of married respondents. Our findings are consistent with previous research showing that, among tenants who appear in eviction court, those with children are significantly more likely to be evicted.

This result points to the fact the child care represents an essential but often overwhelming expense for many families, even those with both parents in the house. Analysis from Care.com shows that average daycare costs for toddlers range from $8,043 to $18,815 per year. Furthermore, one-third of families surveyed reported that childcare costs take up 20 percent or more of their household income.

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Not surprisingly, evictions were found to be most prevalent in metro areas where poverty rates are the highest.  

Of the 50 largest metros in the nation, evictions are most prevalent in Memphis, with 6.1 percent of users reporting a prior eviction. Most of the metros with the highest eviction rates are located in the South and Midwest and include Atlanta, Indianapolis and Dallas. We find that the factors most strongly correlated with eviction rates include (1) the rate of foreclosures from 2007 to 2008, during the height of the foreclosure crisis, and (2) current poverty rates.

Memphis, for example, has the highest share of its population living in poverty at 19.4 percent, and it also has the highest eviction rate. In metros with high poverty rates, many households may qualify for assistance through programs such as Section 8, but, unfortunately, only a small share of those eligible for such benefits actually receive them, leaving the majority of low-income households struggling to pay rent.

Las Vegas had the second highest foreclosure rate from 2007 to 2008 at 9.2 percent and now has the sixth-highest eviction rate at 5.5 percent. This correlation suggests that many of the areas hit hardest by the foreclosure crisis have had a difficult time recovering. Despite lower housing costs, renters in these areas — some of whom are likely former owners who had their homes foreclosed upon — face a lack of opportunity that makes it difficult for them to pay their rent.

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Of course, with rental rates steadily climbing since the great recession, in spite of stagnant wages, it’s hardly surprising that the Federal Reserve Bank’s controlled “recovery” hasn’t helped all Americans equally.

Source: ZeroHedge

 

L.A. to Worsen Housing Shortage with New Rent Controls

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Los Angeles, home to one of the least affordable housing markets in North America, is now proposing to expand rent control to “fix” its housing problem. 

As with all price control schemes, rent control will serve only to make housing affordable to a small sliver of the population while rendering housing more inaccessible to most. 

Specifically, city activists hope that a new bill in the state legislature, AB1506, will allow local governments, Los Angeles included, to expand the number of units covered by rent control laws while also restricting the extent to which landlords can raise rents. 

Unintended Consequences 

Currently, partial rent control is already in place in Los Angeles and landlords there are limited in how much they can raise rents on current residents. However, according to LA Weeklylandlords are free to raise rents to market levels for a unit once that unit turns over to new residents. 

This creates a situation of perverse incentives that do a disservice to both renters and landlords. Under normal circumstances, landlords want to minimize turnover among renters because it is costly to advertise and fill units, and it’s costly to prepare units for new renters. (Turnover is also costly and inconvenient for renters.) 

By limiting rent growth for ongoing renters, however, this creates an incentive for landlords to break leases with residents — even residents who the landlords may like — just so the landlords can increase rents for new incoming renters in order to cover their costs of building maintenance and improvements. The only upside to this current regime is that at least this partial loophole still allows for some profit to be made, and thus allows for owners to produce and improve housing some of the time

But, if this loophole is closed, as the “affordable housing” activists hope to do, we can look forward to even fewer housing units being built, current units falling into disrepair, and even less availability of housing for residents. 

Why Entrepreneurs Bring Products to Market 

The reason fewer units will be built under a regime of harsher rent control, is because entrepreneurs (i.e., producers) only bring goods and services to market if they can be produced at a cost below the market price. 

Contrary to the myth perpetuated by many anti-capitalists, market prices — in this case, rents are not determined by the cost of producing a good or service. Nor are prices determined by the whims of producers based on how greedy they are or how much profit they’d like to make. 

In fact, producers are at the mercy of the renters who — in the absence of price controls — determine the price level at which entrepreneurs must produce housing before they can expect to make any profit. 

However, when governments dictate that rent levels must be below what would have been market prices — and also below the level at which new units can be produced and maintained — then producers of housing will look elsewhere. 

Henry Hazlitt explains many of the distortions and bizarre incentives that emerge from price control measures: 

The effects of rent control become worse the longer the rent control continues. New housing is not built because there is no incentive to build it. With the increase in building costs (commonly as a result of inflation), the old level of rents will not yield a profit. If, as often happens, the government finally recognizes this and exempts new housing from rent control, there is still not an incentive to as much new building as if older buildings were also free of rent control. Depending on the extent of money depreciation since old rents were legally frozen, rents for new housing might be ten or twenty times as high as rent in equivalent space in the old. (This actually happened in France after World War II, for example.) Under such conditions existing tenants in old buildings are indisposed to move, no matter how much their families grow or their existing accommodations deteriorate.

Thus, 

Rent control … encourages wasteful use of space. It discriminates in favor of those who already occupy houses or apartments in a particular city or region at the expense of those who find themselves on the outside. Permitting rents to rise to the free market level allows all tenants or would-be tenants equal opportunity to bid for space. 

Nor surprisingly, when we look into the current rent-control regime in Los Angeles, we find that newer housing is exempt, just as Hazlitt might have predicted. Unfortunately, housing activists now seek to eliminate even this exemption, and once these expanded rent controls are imposed, those on the outside won’t be able to bid for space in either new or old housing.

Newcomers will be locked out of all rent-controlled units — on which the current residents hold a death grip — and they can’t bid on the units that were never built because rent control made new housing production unprofitable. Thus, as rent control expands, the universe of available units shrinks smaller and smaller. Renters might flee to single-family rental homes where rent increases might still be allowed, or they might have to move to neighboring jurisdictions that might not have rent controls in place. 

In both cases, the effect is to reduce affordability and choice. By pushing new renters toward single-family homes this makes single-family homes relatively more profitable than multi-family dwellings, thus reducing density, and robbing both owners and renters of the benefits of economies of scale that come with higher-density housing. Also, those renters who would prefer the amenities of multi-family communities are prevented from accessing them. Meanwhile, by forcing multi-family production into neighboring jurisdictions, this increases commute times for renters while forcing them into areas they would have preferred not to live in the first place. 

But, then again, for many local governments — and the residents who support them — fewer multi-family units, lower densities, and fewer residents in general, are all to the good. After all, local government routinely prohibit developers from developing more housing through zoning laws, regulation of new construction, parking requirements, and limitations on density. 

And these local ordinances, of course, are the real cause of Los Angeles’s housing crisis. Housing isn’t expensive in Los Angeles because landlords are greedy monsters who try to exploit their residents. Housing is expensive because a large number of renters are competing for a relatively small number of housing units. 

And why are there so few housing units? Because the local governments usually drive up the cost of housing. As this report from UC Berkeley concluded: 

In California, local governments have substantial control over the quantity and type of housing that can be built. Through the local zoning code, cities decide how much housing can theoretically be built, whether it can be built by right or requires significant public review, whether the developer needs to perform a costly environmental review, fees that a developer must pay, parking and retail required on site, and the design of the building, among other regulations. And these factors can be significant – a 2002 study by economists from Harvard and the University of Pennsylvania found strict zoning controls to be the most likely cause of high housing costs in California.

Contrary to what housing activists seem to think, declaring that rents shall be lower will not magically make more housing appear. Put simply, the problem of too little housing — assuming demand remains the same — can be solved with only one strategy: producing more housing

Rent control certainly won’t solve that problem, and if housing advocates need to find a reason why so little housing is being built, they likely will need to look no further than the city council.

By Ryan McMaken | Mises Institute

Rents Set To Keep Rising After Latest Multi-family Starts & Permits Report

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But if starts were better than expected, then the future pipeline in the form of Housing Permits disappointed, with 1,116K units permitted for the month of April, below the 1,135K expected, if a rebound from last month’s downward revised 1,077K.

The issue, as with the starts data, is the multi-family, aka rental units, barely rebounded and remained at severely depressed levels last seen in 2013: at 348K rental units permitted in April, this is a far cry from the recent highs of 598K in June.

One wonders if this is intentional, because based on soaring asking rents, as shown in the chart below, with Americans increasingly unable or unwilling to buy single-family units, rental prices have exploded to 8% Y/Y based on Census data.

Should multi-family permits and starts remain as depressed as it has been in recent months, we expect that this chart of soaring median asking rents will only accelerate in the near future, and will require a whole host of seasonal adjustments from making its way into the already bubbly CPI data.

Source: ZeroHedge

This Is Where America’s Runaway Inflation Is Hiding

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The Census Bureau released its quarterly update on residential vacancies and home ownership for Q1 which is closely watched for its update of how many Americans own versus rent. It shows that following a modest pickup in the home ownership rate in the prior two quarters, US homeowners once again posted a substantial decline, sliding from 63.8% to 63.5%, and just 0.1% higher than the 50 year low reported in Q2 2015.

And perhaps logically, while home ownership continues to stagnate, the number of renters has continued to soar. In fact, in the first quarter, the number of renter occupied houses rose by precisely double the amount, or 360,000, as the number of owner occupied houses, which was a modest increase of 180,000. This brings the total number of renter houses to 42.85 million while the number of homeowners is virtually unchanged at 74.66 million.

A stark representation of the divergence between renters and owners can be seen in the chart below. It shows that over the past decade, virtually all the housing growth has come thanks to renters while the number of homeowners hasn’t budged even a fraction and has in fact declined in absolute numbers. What is obvious is that around the time the housing bubble burst, many Americans appear to have lost faith in home ownership and decided to become renters instead.

An immediate consequence of the above is that as demand for rental units has soared, so have median asking rents, and sure enough, according to Census, in Q1  the median asking rent at the national level soared to an all time high $870.

Which brings us to the one chart showing where the “missing” runaway inflation in the US is hiding: if one shows the annual increase in asking rents, what one gets is the following stunning chart which shows that while rent inflation had been roughly in the 1-2% corridor for two decades, starting in 2013 something snapped, and rent inflation for some 43 million Americans has exploded and is currently printing at a blended four quarter average rate of just over 8%, the highest on record, and 4 times higher than Yellen’s inflationary target.

So the next time Janet Yellen laments the collapse of inflation, feel free to show her this chart which even she can easily recreate using the government’s own data (the sad reality is that rents are rising even faster than what the government reports) at the following link.

Source: ZeroHedge

Hooray! Huge Rent Hikes Coming

In news that is bound to make the inflationists at the Fed as well as property owners happy, Landlords Will Hike Rents by 8% this Year.

Some 88% of property managers raised their rent in the last 12 months and 68% predict that rental rates will continue to rise in the next year by an average of 8%, according to a survey of more than 500 of Rent.com’s property management customers, which the site says represents thousands of rental properties and hundreds of thousands of rental units. That’s nearly three times the wage increase that most employees can expect this year.

What’s more, 55% of property managers said that they are less likely to offer concessions or lower rents in order to fill vacancies. One reason why they’re getting even tougher: They are in a stronger position than they were this time last year.

More than 46% of property managers surveyed reported a decrease in rental vacancies in Rent.com’s survey and, in the second quarter of 2015, vacancy rates in the U.S. for rental housing was 6.8%, the lowest it has been in almost 20 years, according to data from the U.S. Census Bureau.

Despite this, many renters are spending more than 30% of their income on rent (the amount generally recommended) and need help qualifying for the lease.

Yardi Survey

Mish reader “BJ” is retired but works part-time a number of hours each week, surveying apartments for rent. He reports …

I am retired but work part-time for Yardi from my home, surveying apartments for rents. Yardi runs a full survey 3 times a year, Jan, May and Sept. These generally run about 6 weeks.

Yardi has the country divided into 24 sectors and we normally work 6-7 sectors once a month for a week on a rotating basis.  Toward the end of the survey, we can work any market and I’ve been keeping track of a few select places. From what I see, rents are up and up a lot. Some of the places I watch are up 7% or more than last year for the same apartments.

The absolute worst places to be looking for a rental unit are San Fran and North LA. If anyone does answer the phone in those areas, it’s either a new building just opening, or they don’t have anything. You can’t even get on a waiting list. I’ve seen apartments in tight areas where they want you to make 3X net before they will talk to you.

Portland, Seattle, Washington DC, northern NJ, Miami and Boston are also difficult. I talked to a complex in Portland last week that had 3500 apartments under management with a total of 7 open apartments.

I am amazed by the amount of apartments that are either tax credit or subsidized in some manner. All of them have long waiting lists.

Measuring Housing Inflation

The Fed wants inflation. But how do they measure it?

Read more on Mish’s Global Economic Trend Analysis

Rents Have Been Skyrocketing In These 13 US Cities

Seven years ago, the American home ownership “dream” was shattered when a housing bubble built on a decisively shaky foundation burst in spectacular fashion, bringing Wall Street and Main Street to their knees. 

In the blink of an eye, the seemingly inexorable rise in the American home ownership rate abruptly reversed course, and by 2014, two decades of gains had disappeared and the ashes of Bill Clinton’s National Home ownership Strategy lay smoldering in the aftermath of the greatest financial collapse since the Great Depression.

In short, decades of speculative excess driven by imprudence, greed, and financial engineering and financed by the world’s demand for GSE debt had come crashing down and in relatively short order, a nation of homeowners was transformed into a nation of renters. 

It wasn’t difficult to predict what would happen next.

As demand for rentals increased and PE snapped up foreclosures, rents rose, just as a subpar jobs market, a meteoric rise in student debt, tougher lending standards, and critically important demographic shifts put further pressure on home ownership rates. Now, America faces a rather dire housing predicament: buying and renting are both unaffordable. Or, as WSJ put it last month, “households are stuck between homes they can’t qualify for and rents they can’t afford.”

We’ve seen evidence of this across the country with perhaps the most telling statistic coming courtesy of The National Low Income Housing Coalition who recently noted that in no state can a minimum wage worker afford a one bedroom apartment. 

In this context, Bloomberg is out with a list of 13 cities where single-family rents have risen by double-digits in just the last 12 months. Note that in Iowa, rents have risen more than 20% over the past year alone.

More color from Bloomberg:

Landlords have been preparing to raise rents on single-family homes this year, Bloomberg reported in April. It looks like those plans are already being put into action.

The median rent for a three-bedroom single-family house increased 3.3 percent, to $1,320, during the second quarter, according to data compiled by RentRange and provided to Bloomberg by franchiser Real Property Management. Median rents are up 6.1 percent over the past 12 months. Even that kind of increase would have been welcome in 13 U.S. cities where single-family rents increased by double digits.

It’s more evidence that rising rents have affected a broad scope of Americans. Sixty percent of low-income renters spend more than 50 percent of their income on rent, according to a report in May from New York University’s Furman Center. High rents have also stretched the budgets of middle-class workers and made it harder for young professionals to launch careers and start families.

“You’re finding that people who wouldn’t have shared accommodations in the past are moving in with friends,”says Don Lawby, president of Real Property Management. “Kids are staying in their parents’ homes for longer and delaying the formation of families.”

And for those with short memories, we thought this would be an opportune time to remind you of who became America’s landlord in the wake of the crisis…

Source: Zero Hedge