- Improvements in entry level employment are good for apartment renters too
- As things get gradually better, will they still continue renting?
In an uplifting trend in a sometimes still dismal American property market, there has been a recent surge of interest in renting apartments. While takers still mainly comprise families forced out of their houses by unsympathetic mortgage lenders, new entrants increasingly include young adults with their first jobs thanks to the firming bottom end of the American job market.
The increase in rentals for the first half of 2010 amounted to 215,000 (nearly double the total for the whole of 2009). It is also the best kick-in since 1992. Demand has been astounding so far this year, a leading market analyst confided in me. Investors are building their inventories as they expect rental returns to increase 5% to 10% per unit of accommodation.
Whether or not this turns out to be true will increasingly depend on the state of the employment market, as input to the foreclosure process begins to taper off. According to the Labor Department, employers began hiring again after the Christmas recess, adding a median 147,000 jobs per month so far this year. The key group for property owners is the 20 to 29 year old age group – this category was up year-on-year in May and June 2010 for the first time since 2007. While these relatively modest gains are still nothing to get overly excited about compared to pre-bust years, they may yet be sufficient to convince relatives sharing homes to strike out on their own.
Malcolm Doe aged 27 moved to New York from San Diego in January 2010 in search of work in the communications industry. While his married brother was kind enough to allow him to doss down on the couch in the lounge things were never easy for either of them. After he found a job 4 months later, he moved in with a flat mate in Manhattan East Side where $700 a month buys him independence and a sense of respectability. “I was tired of depending on my family for housing,” he told me the other day “I can’t imagine doing that forever”.
It seems likely that the rental market will remain robust for a few years longer as these trends continue to unwind. Effective rents (those paid after concession breaks from embattled proprietors) went up just 1.5% so far this year – as things harden they may jump up between 4% and 6% in the successive 2 years. The buy-versus-rent debate is a further factor to consider. While interest rates are aggressively down for current buyers, many existing apartment owners are facing traditionally higher payments. They appear to be testing cautiously for squeeze room, which indications indicate exists.
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Written by Alex Rolim.
