It’s a case of supply and demand — more people are renting apartments, construction of new units still hasn’t returned to 2008 pre-recession levels and so rents are rising.
During the Great Recession, more than four million homes were foreclosed. Underwater mortgages have led some to believe that home ownership isn’t as viable as an option as it once was, said Doug Culkin, president and CEO of the National Apartment Association, a Virginia-based organization that represents multifamily housing owners, managers, developers and suppliers.
Shifting demographics also play a large role. The heavy debt load of so many recent university graduates and young adults may not allow them to put a downpayment on a house as quickly as in years past, and baby boomers are seeking to downsize the homes they own now.
A 2012 report by the Iowa Finance Authority found that young adults between the ages of 25 and 34 formed more new households in Iowa than any other age group in the decade. But they aren’t buying new houses – the majority of them are renting.
“This is a generation that’s moving into apartments,” Culkin said. “This is a phenomenon that is going to continue to increase.”
Renters can move more around freely, which may be necessary to deal with today’s challenging job market.
“There will always be people who will buy homes,” he said. “But apartment living is no longer an economic necessity – more and more it’s becoming a choice.”
Occupancy rates are hitting historically high levels, sitting between 95 and 96 percent nationwide, Culkin added. Here in the Corridor, occupancy rates are between 90 to 94 percent in Cedar Rapids and about 98 percent in parts of Johnson County.
This is compared with vacancy rates of as much as 10 percent in the mid-2000s and 10.6 in 2009, according to a study from the Joint Center for Housing Studies at Harvard. A 5 to 6 percent vacancy rate is considered to be a normal market.
So with demand up and supply tight, rents have been steadily increasing since 2011.
A December report released by real-estate research company Reis Inc. in New York City showed that landlords raised rents an average of 0.8 percent, to $1,083 a month, in the last quarter of 2013, according to the Wall Street Journal.
Rents increased 3.2 percent throughout 2013 and, while this was higher in some areas than others, the report found that no market saw a decline in average rental rates.
Culkin anticipates rents will rise another 2.5 to 2.8 percent in 2014.
Rental rates in Iowa are in line with national averages.
A search of Apartments.com, a national apartment data base, show that rents for a two bedroom apartment in Cedar Rapids are from $655 to $925; Iowa City rents range from $680 to $1,100; Des Moines rents range from $620 to 1,500; and West Des Moines rents from $670 to $1,100.
By comparison, a look at 2011 classified ads in The Gazette shows two bedroom apartments for rent in Cedar Rapids for $615 to $775.
“This market certainly favors property owners,” said Casey Cook of Cook Appraisal in Iowa City. “Rents here have gone up, though not as much as I expected.”
The real estate appraisal company conducts a multifamily housing survey of Johnson County every two years.
The 2013 survey that gathered information from 4,595 apartment units throughout Iowa City, North Liberty and Coralville found that the average rent for a two-bedroom apartment increased 3.63 percent between 2011 and 2013.
Construction starting to catch up
Before the recession, during the building boom, when money was more easily available and land was cheap, developers built between 300,000 to 350,000 units a year nationwide, Culkin said.
“This doesn’t mean all of those units were needed. (Developers) tend to overbuild when money is cheap,” he said.
But after the recession, that number dropped down to 78,000 new units in 2011, when construction bottomed out, according to National Apartment Association data.
The amount of units under construction is rising, Culkin added, but it’s still not up to pre-recession levels. In 2013 about 187,000 multifamily units were brought to market, and he estimated another 231,000 units will be built in 2014.
“Lots of development is going on where the demand is,” he said, noting that hasn’t always been the case in the past. “Younger people want to live in a community close to public transportation, in the area where they work and play.”
Multifamily starts rose 39.8 percent in 2012 to 233,900 units, which is up dramatically from the 2008 and 2009 levels.
The Iowa Finance report forecast an additional 37,000 rental units will be needed to accommodate work force growth. Rental units are forecast to comprise about 28 percent of future housing demand associated with the forecast increase in employment and associated workers, it said.
Last year in Cedar Rapids, 294 multifamily units, which include duplexes and apartment buildings, were built, according to the city’s building services division. There are several large multifamily complexes under construction in Johnson County as well, Cook added.
“In 2015, I think a lot of pressure will be off,” he said.
Builders also are putting in more hard wood floors and marble counter tops, Culkin said – products that are more expensive, but also can be maintained longer.
“This leads to higher rents, but people are willingly to pat a little extra money for more luxury,” he said.