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By New_Deal_democrat July 29, 2015 1:04 pm
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The apartment boom continues: record low vacancies, record high rents
Tuesday the Census Bureau released its quarterly report on homeownership.  While the bulk of the commentary focused on the homeownership rate, and price of housing, I would like to focus on apartment rentals. The share of apartment building compared to single family home construction has jumped since the last recession, partly due to the swelling demographic of Millennials entering the market, and partly due to nearly-stagnant wages. 

Here is the rental vacancy rate compared with the homeowner vacancy rate: 


Rental vaca ncies were at a new record low in the 2nd quarter of 2015.  This is the flip side of the 20-year low in homeownership rates

Unsurprisingly, in nominal terms, the median asking rent has been rising to new records in the last several years:  

But that doesn't tell us what has been going on in real terms.  To do that, we should adjust for inflation, or alternatively by wages.  That is what I have done in the chart below.  It shows nominal asking rents vs. median weekly wages as compiled by the BLS.  It shows that real rents declined in the 1990s as wages increased, soared in the 2000 - 2009 period, and had remained below that peak ever since -- until the first quarter of this year:


/this year, for the first time in history, the median asking rent equaled the entire weekly earnings of the median worker.


Even worse, the median wage of all workers does not quite accurately capture the median wage of renters, since they tend to be from lower income groups.  And as the graph below compiled by the Employment Law Project from last August shows, the median real wage of the 4th and 5th quintile as of then had declined more than the median real wage of workers overall compared with their 2009 peak:





Looking at multi-unit housing construction helps us distill some signal from the noise.  First of all, here is a graph comparing single family permits (blue) with multi unit permits (red) for the last 50 years:



Note that mult-unit permits surged in the late 1960s and 1970s as Boomers hit adulthood.


Now here is a close-up for the last 5 years:



Note we have had a similar surge in mult-unit permits, which has really taken off in the last 3 months.  I would not be surprised at all by a significant, temporary, pullback, but the trend is very much in accord with the late 1960s.


I had suspected  that some of the spike in asking rents int he first quarter would prove to have been noise, and further expected the 1st quarter slowdown in apartment construction to be transitory.  While the spike does not look transitory  now, the demographics-driven increase in condo and apartment construction has indeed reasserted itself.  I expect this increase to continue for a long time, with rents only plateauing and abating once the supply has caught up with Millennials' demand.


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