As the housing crisis deepens in many areas of the country, a growing number of younger potential home buyers are turning instead to the rental market.
While builders and real estate agents are feeling the pinch, the apartment industry is savoring its "rediscovery." According to National Multi-Housing Council chief economist Mark Obrinsky, apartment rents measured by both public and private data sources rose in the second quarter.
For the eighth straight quarter, the fastest rent growth occurred in the West, where housing prices tend to be the highest and the number of foreclosures and mortgage delinquencies are concentrated, while the South (outside Florida the lower median home prices) had the lowest rent growth.
With overall inflation at 2.8 percent over the last year, "real" rent was actually negative in all regions except the West, Obrinsky said.
For several years, apartment construction lagged behind home building, and average rents have increased because of the gap between growing demand and lack of inventory.
The equation will not change anytime soon. Obrinsky said that multifamily starts were virtually flat in the second quarter of 2007, while multifamily permits edged down, and completions dropped sharply.
In addition, financing is not as plentiful as before the current credit crunch. Growth in multifamily mortgage credit slowed in the first quarter to $12 billion (from $16 billion the previous quarter and $14 billion a year earlier), Obrinsky said.
Rising apartment rents have put a crimp in renters' budgets, according to data from Apartments.com. A recent survey taken on the website showed more than 60 percent of respondents spending more than the recommended percentage of their income on rent, with 20 percent devoting more pending more than half of their annual salary on rent.
Industry experts suggest approximately one third of an individual's annual income should be spent on housing. Ninety-five percent of the survey respondents said that rent was their largest monthly bill.
While many renters are concerned about the increasing costs of their monthly housing expenses, they are demanding amenities comparable to what home buyers want. More than 36 percent of respondents to another Apartments.com survey said that air conditioning is the one amenity they could not live without.
In addition to air conditioning, 22 percent of renters surveyed stated that parking was the one amenity they could not live without, and 14 percent said it was the in-unit washer and dryer.
Renters also showed great interest in specific service and technology amenity offerings; 61 percent of respondents indicate that digital cable was a desirable amenity, 59 percent would like the option to pay rent online and 53 percent of respondents are interested in in-unit wireless Internet.
When faced with selecting between two apartments that are equal in amenities and pricing, more than 52 percent of survey respondents said the location of the property would be the determining factor as to which apartment they would choose.
The strong market conditions for apartment firms will translate into small merit-based pay increases for industry professionals according to multi-housing council's annual National Apartment Survey of Compensation and Benefits Practices.
The 2007 survey also indicates that industry efforts to reduce employee turnover rates are producing results, but that companies are being challenged by rising health care costs.
Firms predict that employees at the vice president level and above will receive an average 3.8 percent merit increase in 2007. This is the same rate predicted last year, although actual raises for this group averaged 4.3 percent.
Managers below the vice president level can expect 3.7 percent average merit increases, compared with last year's 3.6 percent prediction and 3.9 percent actual boosts. Non-exempt employees (non-supervisory and hourly employees), such as leasing consultants and maintenance technicians, are budgeted to see the smallest average merit increases, at 3.6 percent, up from 2006's 3.4 percent forecast but consistent with last year's actual increase.
Controlling employee turnover was a priority for many firms after last year's survey posted a nearly 22 percent increase in overall average turnover rates (from 37.2 percent in 2005 to 59.2 percent in 2006).
This year, firms made up some of that lost ground, posting an overall average turnover rate of just 42.8 percent.
Leasing consultants were once again the highest turnover position, although their turnover rates remained virtually unchanged from last year at 54.5 percent and down significantly from a high of 70.8 percent reported in 2004.