In Defense of Landlords

If you cannot find an affordable place to rent, you are not alone.
The Associated Press reports that the vacancy rates dropped from 6.7% to 5.4% nationwide, while the national average rent increased 3.9% for the year ending on September 30. With the increased demand for apartments and the limited supply of available units, rent has soared across the nation.  The laws of supply and demand explain this phenomenon.  Unfortunately for landlords, frustrated renters naturally blame them for raising their rent and making living unaffordable.  I would like to offer a defense of the landlords by identifying some alternative targets for renters to direct their anger.

A Landlords Market

For five long years, landlords had to compete with each other just to fill their vacancies by lowering rents, offering incentives, and fulfilling all the demands of the  limited renters.  With the housing market hot, many of their potential renters chose to purchase homes instead, making the life of the landlord extremely troublesome.  And now, for the first time since 2001, the tide has shifted.  With the housing market in a slump, the rental market has boomed… and it is a landlord’s market.  We should be happy for them…

So who are we supposed to blame for the increased rent and low vacancy rates that make finding an apartment virtually impossible?   Well, let’s first look at the reasons why the demand for apartments has increased so significantly.

Growing Demand

The good economy has resulted in significant job growth, as U.S. businesses have produced about 4 million new jobs over the past two years, and many are looking to rent.  With the high prices and mortgage rates, many are opting to wait for the housing bubble to bottom out and home prices to tumble before buying a home, adding to the demand for rental units.  Furthermore, there has been a significant growth in the renter pool as the baby boomers’s children graduate from college and strike out on their own.  Finally, the effects of Hurricane Katrina have been felt greatly on many markets, as people have been forced to relocate to the surrounding areas.  In fact, the Associated Press reports that the vacancy rates in Houston, TX have fell from 10.8% to 6.3% since the hurricane.

So, if the economy, the housing market, our parents, and Hurricane Katrina all share responsibility for the increased demand, clearly we cannot hold the landlords at fault, right?  But why has the supply of apartments not been able to keep up with the demand?

Limited Supply of Apartments

Well, for starters, during the past five years, many apartment buildings were converted into condominiums,  particularly in Florida and Southern California.  In fact, Ft. Lauderdale, FL has the highest occupancy rate in the country, 99%.   Furthermore, the construction of new buildings is limited by high construction and land costs and, especially in traditionally tight markets like New York City, building permits are especially hard to come by.  Therefore, there has not been sufficient construction of new apartment buildings to make up for the conversion craze of past years.

Effects on the Rental Market

With the increased demand for apartments and the limited supply of available units, rent has soared across the nation, as vacancy rates have fallen.  Thus, rather than competing for tenants like in years past, landlords are no longer forced to jump through hoops to entice renters to their properties.  Instead, people are practically knocking down their door and many landlords have waiting lists for people waiting for apartments to become available.  I am on about ten of them myself here in D.C., where I am looking for a reasonably priced apartment, preferably in Dupont Circle, Georgetown, or Adams Morgan.  (Landlords, contact me)

Renters will find that they must compromise more today than in the past five years, as the lower vacancy rates often make it hard to find any apartment, let alone one that fulfills all of their desires.  Instead, many people find that they must settle for smaller units or buildings that provide less amenities than before, unless they can afford the higher rents.  And it’s not over- according to the New York Times’ “It’s a Good Time to Be a Landlord,” landlords can be expected to raise rent even more in the future.

Furthermore, many landlords are resorting to a bidding system, listing on BidRent, the self-proclaimed “eBay of Rental Properties.”   Landlords list a property with the desired rent and then interested individuals place bids on the units according to how much they are willing to pay.  Often, landlords find tenants who are willing to pay more than the asking price.  But, still, we should be happy for them.

The Hottest Markets

While the national average rent has increased, the most expensive markets are still New York, the San Francisco Bay Area, and Los Angeles.  For more information on your city, check out the link below.

The 10 Most Expensive Cities for Renters*

 

City

Avg. rent

Annual rent chng.

Occupancy

New York**

$2,469

NA

97.10%

San Francisco

$1,947

8.8%

97.4%

Los Angeles

$1,586

6.5%

97.5%

San Jose, Calif.

$1,487

11.6%

98.2%

Orange County, Calif.

$1,387

6.0%

96.8%

Boston

$1,332

2.1%

96.7%

Oakland

$1,248

5.8%

96.8%

San Diego

$1,213

3.1%

97.1%

Washington, DC

$1,205

4.5%

97.4%

Fort Lauderdale, Fla.

$1,134

9.7%

97.5%

*Source: M/PF Yieldstar; second-quarter snapshot **Source: REIS Inc.