Many property managers and owners feel that new constructions and increased supply of rental units is going to create improved supply and bring the rent down. There are also concerns about increased vacancy rates, as people might want to move to newer units. However, there is no need for panic, as statistics prove otherwise. Even though close to 200,000 new units have come into the rental market, the occupancy in existing units have not decreased, and the rental rate has continued to grow and seen the best levels.
In fact, the occupancy rate has been 95% for the second quarter of this year, and growth rate for rent is 2.4%, which are very promising signs. Hence, this time, even with new supply of units the property market is flourishing. Here are some of the reasons why it is different this time.
Diminishing Popularity of Single Homes
Even though rate of construction of new apartments for last couple of years has remained almost the same, the demand for apartments has increased. This is mainly because many families now are not eager to move to single homes, and prefer apartment units. Secondly, the rate of homeownership has also fallen considerably since 1995. This indicates there is lesser supply of residences, since homeownership is providing costly for many people. Even though rent may be high, people prefer to stay in apartments for a longer time, because the cost of owning a home works out to being even more of a financial burden.
In addition, it is easier to move out of an apartment than a home. On top of this, the recession still continues.
Ownership is Scary
People have not forgotten the foreclosure crisis, where homes and equity were lost within minutes. Many people are now much more cautious and do not much care about homeownership. Secondly, families now prefer living in apartments compared to suburban homes, since they do not want long commutes and prefer to be near workplaces and play areas available at the core of urban areas. Additionally, most of the people seeking accommodation are young professionals, who are repaying their student loans. This means, they do not have the credit rating required for down payments on new homes.
Median salary ranges of America have continued to decline. The American economy is nothing to smile about and this is reflected in all those renters across the landscape.
Supply has Still not Caught Up with the Demand
During the recovery period after the recession, financing home construction was difficult, which means deliveries were late and inventory rate increased. Secondly, even though there is growth in new construction now, it has not caught up with the increased demolitions of obsolete structures. Additionally, many structures were converted to senior housing and condominiums, which increased the divide. Therefore, the market has not really caught up with the increasing demand, as can be clearly seen from the higher occupancy rates of some of the metropolitan areas.
New Apartment Units are Class a Category
Most of the new apartment units are in the top pricing bracket, since they come under Class A urban core category. This means only a few renters will be able to afford an upgrade to these expensive apartments, and only the new upwardly mobile crowd can think of renting these new apartments. Therefore, there is still a heavy demand for existing Class B and B+ units, which are generally more affordable by a vast section of society.