Up Sucker Creek

Up Sucker Creek
Photo Courtesy of the Lake Oswego Library

Wednesday, January 4, 2017

Rents sluggish as apartment glut increases

Rents stabilize nationwide amidst apartment building boom
It is always a matter of time before housing conditions change - unless government interferes with the market.

Looks like the "need" for rent control is easing.  Actually, there is never a need for rent control because it is a political scam and doesn't work.  The popularity of rent control lies in the fact that so few people are taught basic rules of economics like supply and demand.  If one believes that government can manage a real estate market (or any other market), they are willingly delusional and close-minded about learning new facts.  How does the real state cycle work?

  1. Demand went up and created a shortage of housing units.
  2. Short supply drove up the price of all types of housing.
  3. For many reasons, the lag in new supply could not keep up with accelerating demand and housing prices pushed higher. 
  4. High housing prices finally created a positive economic environment for [expensive] new construction, and housing supply began to increase.
  5. Because of the cost of new construction, new housing units have been been in the luxury and high-end category.  Affordable units are still on n short supply.
  6. High-end housing units have reached a saturation point in many cities where rents are stabilized.  Concessions lower prices further.
  7. As high-end housing prices stabilize, so do the moderate and low-end units.  
  8. Supply reaches an equilibrium then over-supply before new construction stops or slows.  
  9. New supply will not return until rents are again on the rise and the market supports it. 

This is the real estate cycle - a continual chase for economic returns, and retreat from oversupply and low returns.  Perfect equilibrium in pricing (supply and demand) is fleeting and impossible to maintain.  Conditions today are at or nearing the peak of the cycle.  The last trough was 10 - 15 years ago when appartment owners struggled to be profitable.  When concessions (free rent) come back, we are at or near the trough where pricing is decreasing.  No government action is needed to cure the housing crisis - the market will respond.  Rent control only shuts off supply and makes things worse.

Q:  How will a changing rental housing market affect new construction in Lake Oswego?

Wall Street Journal, January 3, 2017 By Laura Kusisto
Luxury Apartment Boom Looks Set to Fizzle 
in 2017

Building glut outstrips demand, likely forcing landlords to slash rents


Landlords of upscale properties across the U.S. are bracing for rough conditions in 2017 that will likely force them to slash rents and offer deep concessions as a glut of supply brings a seven-year luxury-apartment boom to an end.
The turnaround follows a more-than-26% jump in U.S. apartment rents since early 2010, far outstripping inflation and income growth. But in 2016, rents rose a modest 3.8%, a significant drop from the recent high of 5.6% year-to-year growth in the third quarter of 2015, according to a report to be released Tuesday by MPF Research, a division of RealPage Inc. that tracks the U.S. apartment market.
Developers in New York are already offering up to three months of free rent on some projects. In Los Angeles, some landlords are offering six months of free parking, and some in Houston are waiving security deposits. Meanwhile, MPF Vice President Jay Parsons said he expects little or no rent growth in urban rental markets this year.
“This will be a very challenged leasing environment almost everywhere,” Mr. Parsons said.

The slowdown, he said, is being driven not by a pullback in demand but rather a flood of new apartments. Demand for urban properties jumped after the housing bust as young, high-earning professionals eschewed homeownership and flocked to big cities. Developers responded by focusing most of their efforts on high-end properties.

Rents in San Francisco, New York, Houston and San Jose, Calif., all declined about 1% year-to-year in 2016, according to MPF. Monthly rents now average $1,248 nationally.
The sluggishness is expected to spread across the U.S., hitting markets from Nashville, Tenn., and Dallas to Los Angeles and Atlanta.
The bad news for landlords is good news for tenants.
“This is going to be one of the best apartment markets that I’ve seen [for renters] since 2011,” said Ric Campo, chief executive of Camden Property Trust, one of the country’s largest apartment owners. “The consumer is going to have much broader choice at a lower price.”
In some of the country’s more expensive markets, the slowdown at the top end is showing signs of trickling down to more average-priced apartments. Benjamin Gable, a 31-year-old advertising copywriter, recently scored a $200-a-month discount on 1.5-bedroom apartment in Brooklyn’s trendy Greenpoint neighborhood.
Most real-estate analysts expect luxury construction to slow in coming years as markets work through supply gluts.
Landlords believe the market will revive over time, however. While they don’t expect it to return to the highflying days of 2015, they say the apartment market should settle into its usual position as a steadily growing but largely unexciting part of the real-estate market.
“I don’t see it getting white hot again,” said Mr. Tirrill.

2 comments:

  1. It's important to remember that the it takes a while to build new apartments and housing for people. It isn't as easy as immediately reacting to changes in the property market when it happens because of the lead time. I mean, they certainly can't stash homes in storage and spring them out when prices start climbing right?

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