Back to rentals?
Thought we think of homes and apartments as existing in parallel universes, in fact they are mutable — not only do families migrate from one to the other, properties can also change their tenure appeal.
It’s a mystery why markets blow hot and cold
Just as hot markets encourage apartment owners to convert their properties to condos, cooling markets have the opposite effect, as shown by this recent Washington Post article:
As home sellers grew more frustrated with the slow local real estate market in recent months, they abandoned their for-sale signs and put their homes up for rent. That has increased choices and cooled prices for tenants in one of the tightest and most expensive parts of the country.
In econometric studies of production-versus-vouchers, far too little is made of the beneficial externality of adding new supply: when you overbuild a market, everybody’s rents go down.
Sometimes it takes a price drop to see the market more clearly
“This is the first sign that the cooling housing market is having an impact on the rental market,” said Gregory H. Leisch, chief executive of Delta Associates, an Alexandria research firm that is scheduled to release a report today showing more vacancies in the region’s apartment complexes.
Similarly, communities that are anti-development should remember where cheap rents come from — an excess of supply over demand!
It takes surpluses to get sales prices to drop
The report links the shift in the market to the surge in condos, townhouses and single-family houses for rent — both by sellers-turned-landlords and by investor-landlords who snapped up condos during the market boom.
Investor-landlords are particularly willing to cut the price — their demand is inelastic, and they must find an occupant, so they’re much more likely to break the rental price than to dump their property for a loss.
As competition for tenants intensified, apartment rents did not rise as sharply in the past three months of 2006 as they had earlier in the year, the report said. But they did rise, increasing 4.7% to an average $1,410 per month from $1,302 a year earlier.
Compared with professionals, amateur landlords are easy touches:
Yvonne Carter, a cardiothoracic surgeon at
In previous years, her choices may have been limited to apartment buildings. But in October, she spotted a condo for rent by the owner at the Alta on Thomas Circle in
The Alta,
The Alta, with loft-like apartments, big windows and stainless-steel kitchen appliances, is one the many luxury condos that popped up around the city in the recent building frenzy. Carter snagged it at less than the asking rent.
Carter’s landlord, Maurice Philogene, said he has bought at least 20 condos since 2001, with the intention of renting them out for the long term. Philogene, a software engineer, said he planned to live in the unit Carter now rents but changed his mind. He cut Carter a break on the rent because she signed a two-year lease. The unit, he said, is “pricey — it was nerveracking to cover the mortgage.”
Then don’t buy a speculative condo
Weak nerves are a good reason to employ a professional, someone who’s been through it before and can play better buyer’s poker:
“It’s not catastrophic or injurious, but it’s material,” said
Not catastrophic or injurious, but material
He said his company received 30% fewer inquiries about its units in the last quarter of 2006, compared with 2005. Some properties went from being 99% occupied to 96%, he said.
If you’re scoring at home, in most of
“We are offering specials to move what we call aged inventory, apartments we’ve been sitting on for more than 30 days. I would not have been doing this last year at this time,” he said.
Thomas S. Bozzuto, chief executive of the Bozzuto Group, a home builder and apartment manager, said his
Tenure flexibility is yet another reason why home values resist precipitous price drops — it’s surprisingly easy to pull larger condo properties out of the sales supply by converting them into apartments, and with housing demand elastic, inexpensive apartments encourage multi-housing families.
Markets move fast, way faster than policymakers. As I commented two years ago, when hot markets were sending apartments into condo:
A robust system can hold up the market
A robust housing ecosystem with healthy communities thus has:
· Multiple physical configurations
· Multiple tenure options
· Diversity of configuration and tenure within neighborhoods and metropolitan areas
Configuration diversity encourages tenure transmutation, and that is one of the few things easing housing un-affordability in NIMBYite markets:
Just dial up more affordability
In its report, Delta said that even with the fourth-quarter results, the region’s apartment market remains one of the nation’s strongest, with low vacancy rates that rival those in
Both of which cities, by the way, suffer from the self-inflicted scarcity brought on by rent control (although New York’s is much more virulent than Los Angeles’s relatively mild case).
Stand back, ma’am, we’re here to repeal rent control
Still, the area’s vacancy rates are the highest they have been since 2003, edging up to 2.9% from 2.5% a year earlier and from 1.4% in the third quarter, Delta reported. The company measures vacancy rates only in larger buildings, not in small buildings or individual units.
Thus they probably understate actual vacancy, since smaller buildings may have more trouble renting, and individual apartments may simply be ‘off the market.’
If the overall housing market remains cool and more sellers become landlords for another few quarters, apartment hunters might start seeing lower rents, researchers at Delta and some apartment management companies say.
“Brokers say that come spring, the housing market will be back, and if they’re right, then this phenomenon with the apartment market is a one-time blip,” Leisch said.
Will the market come back as a real spring, or a false one?
“If they’re wrong and the housing market stays cool, which I’m betting on until fall of 2007, then the phenomenon will likely continue.”
Diversity of configuration and tenure are useful in a housing ecosystem; as I posted two years ago, when the pendulum was swinging the other way:
Among the valid public-policy reasons for new affordable housing production is specifically to create configuration and tenure diversity and options within a large and ever-changing evolutionary complex system. That’s an even stronger argument for preserving existing affordable housing.
Stately as the days, the market pendulum swings
