Forecast 1999: Multi-family Housing Boom Gives Tenants More Freedom of Choice, Smaller Rent Hikes in Select Markets While Boom Towns Keep OnBooming

In an economy relatively safe from recession, renters can expect rent increases in line with last year's, while they should enjoy a larger selection of rental units from which to choose.

That's partly because 1998's jump in home ownership to a record 66.8 percent added some 2 million new home owners to the record books and reduced demand for apartments. In spite of a 23 percent increase in the median price of homes last year, record-low interest rates helped buyers overcome the higher cost of housing and put a roof over their heads.

Record-low unemployment and inflation, steady job and income growth and high consumer confidence are all converging to make 1999 another very good year for housing consumers.

The rosy housing picture is painted by Palo Alto, CA-based Marcus & Millichap's "National Investment Research Report, 1999 Real Estate Forecast" prepared for multi-family housing investors, but packed with good news for consumers.

Rents should rise from 3 to 7 percent in 1999, depending on the type of rental, compared to 5.5 percent in 1997 and 4 percent in 1998, the forecast reports.

A slow-down in the economy, coupled with uncertain global economies and a jittery stock market will be offset by low interest rates, leaving the current home sales pace pretty much intact in 1999, according to the report.

Some areas, of course, will do better than others.

Hottest markets

"The San Francisco Bay Area has been the hottest market in the last 36 months, but the balance between supply and demand on the apartment side we've seen a distinct flattening in the curve," said Alan L. Pontius, vice president and regional manager at Marcus & Millichap.

Also in California, sunny Orange County's high and rising housing costs has driven apartment vacancy rates down to 3.3 percent and rents up to an average $920, the highest this decade. That'll continue in 1999 with rents expected to rise another 4 percent because of inventory shortages.

San Diego is currently the nation's toughest town to find rental housing. After climbing to 8.3 percent in 1995, vacancy rates dropped hard to 3.1 percent by 1997 and below 3 percent las year. The tightening market pushed up rents to an average $715 a month in 1998. Expect landlords to tack on another 5 percent rent increase in 1999 and for vacancy rates to drop to 2.5 percent, the lowest in the nation.

Boston's end to rent control and rising rents (9.4 percent last year) means Bean Town is enjoying a surge in multifamily housing development. In and around the communities of Cambridge, Brookline, and Beacon Hill, young professionals and wealthy foreigners compete for luxury apartments and high-end condos. Expect more of the same this year and next four even with an expected 3,556 apartment units going on the market each year, Marcus & Millichap reports.

New York is also expected to out pace the rest of the market as employment growth and generous salaries from Wall Street and other financial sectors send consumers out looking for new quarters. New York City's demand for luxury apartments and condominiums pushed vacancies down last year to 4.9 percent from 5.2 percent in 1997. That means more rental increases are due in the Big Apple.

Cooler towns

"Some select local markets are at a higher risk of reduced absorption and increasing vacancy rates due to over building," Pontius said.

Dallas/Fort Worth leads the nation in apartment construction, but rents will still rise by 4 percent in 1999. Dallas has a 7 percent vacancy rate, but that's likely to change with Dallas building frenzy and if hopes don't materialize to draw more residents to the town's record low unemployment levels and healthy household income increases.

In Denver, the vacancy rate should remain below 5 percent with rent increases limited to 3 to 3.5 percent. Denver is experiencing some slow down in job growth, but diversification away from oil and gas and toward financial services, telecommunications and software is helping Mile High City hold onto demand for rental units.

Atlanta's sputtering job churning machine and an expected 8 percent vacancy rate will all but wipe out rent increases this year as 10,000 new apartments open for renters paying an average $750 a month.

Miami's landlords are offering more and more long leases, concessions and flat rent increases because of lost jobs and a rental housing supply that's out pacing the demand. Indirect global economic uncertainties, specifically weakened Latin American and Caribbean economies, are disrupting international trade patterns in South Florida.

Las Vegas' run is beginning to fizzle as absorption of 9,000 to 10,000 new apartment units a year continues to lag. Vacancies have risen to as high as 7 percent and are expected to remain the same this year. Rents averaged $665 percent last year and should rise only 2 to 2.5 percent in 1999 because Party Town remains a big draw.

Portland rents will remain flat with 1998's 4.7 vacancy rate rising one percent in 1999, resulting in a serious slowdown in multi-family housing development. That's because jobless rates will likely increase as manufacturing employment drops.

"Markets such as Vegas and Portland are already saturated and rents are flat. Vegas over built when it was the nation's booming place and just got ahead of itself and just kept on going. In Portland, you have key hubs and very rapidly you can boost inventory within those tight boundaries," said Pontius.

Published: January 22, 1999

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