By way of Calculated Risk, I came across this Reuters article about apartment vacancies reaching their highest rate in twenty years–and might soon break the record. Currently, the national rate is 7.5%. This matches my impression of the Boston rental market, even in the supposedly ‘recession-proof’ neighborhoods of Back Bay and Beacon Hill. In large apartment buildings (i.e., not smaller houses that have been chopped up into three to eight apartments), the vacancy rate is higher. Using Google cache, rents in the same buildings are down five to fifteen percent in nominal dollars as compared to last year.
As far as I can tell, here’s why this is happening even the recession-proof neighborhoods:
- Financial sector layoffs. Some people can’t afford to live in these apartments anymore.
- Incomes are dropping. Many people who made a good living do consulting work have had their incomes massively reduced (I know several people in my building to whom this has happened). People will obviously be forced to move to lower rent apartments.
- Slowdown of new hires. Apartments always have considerable turnover. If people are leaving apartments, and too few people are replacing them, well, you get vacancies.
- Corporate housing vacancies. Corporations have long-term leases for apartments for long-term temporary workers (e.g., a consultant brought in, or somebody from an out-of-town office who is working in town for a couple of months). Until this year, my building, which was about average for the course, had ~15 – 20% of the units on long-term lease to corporate groups. Companies are reducing or eliminating these arrangements.
- Physical improvements, at least in the short term, have backfired. While improvements, such as a nicer interior, or various amenities, are thought to enable an increase in rents, anecdotally, I’ve observed that the opposite has happened. First, in the short term, the improvements were disruptive to current tenants who typically use that disruption to negotiate a better rent. Second, in more frugal times, a lot of these amenities, particularly if they’re not used, are seen as unneeded extravagances: people would rather have a lower rent.
While you might be tempted to discount the economic status of a wealthy neighborhood, it matters. Rental prices in wealthy neighborhoods bid up rents elsewhere.
Anyway, from my limited perspective, it really appears to be a renters’ market. Is this what other people are experiencing (in Boston or other areas)?