Vacancy Rate
Effective rents, or what tenants paid after any landlord breaks, averaged $1,090 a month in the first quarter, the highest since Reis began keeping the records in 1999. The U.S. apartment-vacancy rate has been hovering around 4 percent, its lowest since 2001, for more than a year.
As development accelerates in urban centers, some investors such as Blackstone are looking farther afield to areas with higher potential for rent gains.
“A lot of what’s getting built is urban mid- and high-rise product,” Meghji said. “There are fewer suburban, garden-style four-story walkups being built in most of our markets because suburban rental rates are not high enough to justify new construction.”
Blackstone is buying older apartments and fixing them up to compete with newer units -- improvements such as upgrading the kitchens and bathrooms, swapping carpets for wood floors and changing the lighting.
Household Formation
Housing demand also has yet to fully rebound. Annual household growth approached 1 million in 2012 for the first time since the Great Recession, according to Harvard University’s Joint Center for Housing Studies’ most recent annual report on U.S. housing. Household formation slowed since 2007 as many people got roommates or moved in with parents.
“Pent-up demand is going to result in more than 1 million households being formed annually the next several years,” Meghji said. “We should have more demand than total housing supply for the next three years.”
For landlords, that increased demand may not be enough to counter the rise in apartment construction and tempered rent growth. Reis estimates that the U.S. apartment-vacancy rate will hold steady or even increase this year, the first time since 2009 it hasn’t declined.
“It’s not the demand side I worry about,” said Ryan Severino, senior economist at Reis, which tracks almost 10 million apartments in 79 major metropolitan areas in the U.S. “It’s the fact that supply growth is just ramping up. We are four years into a recovery and that has to slow down.”