Renters scramble to afford apartments as demand soars

AP ^ | 10/26/6 | ALEX VEIGA

[SmithL]

LOS ANGELES - Kristin Zimmerman went looking for a new apartment recently after someone broke into her unit in a converted Victorian house in the Pacific Heights neighborhood of San Francisco.

She found a roomy, two-bedroom, two-bath dwelling on the edge of upscale Russian Hill, where the previous tenant had been paying $2,600 a month - more than the $1,959 a month she and her roommate were spending but still within their limit.

The landlord, however, wanted $3,000 a month and wouldn't budge.

"The woman was just unrelenting," said Zimmerman, 26, a cancer researcher.

Apartment rents and demand are soaring nationwide as the economy produces good jobs and people who might have bought homes a year ago settle for apartments while they wait for housing prices to tumble.

In addition, the supply of rental housing tightened in the past year as many apartments were converted into condominiums in places like Florida and Southern California. Some of those units are now returning to rental markets at high prices as owners struggle to sell them.

In the quarter ended Sept. 30, the average advertised rent reached $978, up 3.9 percent over the year-ago period, according to an analysis of 75 markets by real estate research firm Reis Inc. in New York. Some of the biggest increases were seen in Florida and Southern California.

Meanwhile, the nationwide vacancy rate for rental housing dropped to 5.4 percent during the quarter from 6.7 percent in the same period of 2004.

"The market is strong enough that landlords are able to reduce the concessions that they're offering to new tenants," said Sam Chandan, Reis' chief economist. "Even more important, vacancies continue to fall."

Traditionally expensive rental markets such as New York City continue to see strong demand because so few new apartments go on the market and home ownership is beyond the reach of most people.

In Houston, the influx of people displaced by Hurricane Katrina helped push vacancy rates down from 10.8 percent to 6.3 percent. In smaller markets such as Portland, Ore., Richmond, Va., and Omaha, Neb., demand has outpaced development.

At Rent.com, the most-visited online rental listing service, searches have more than doubled this year over 2005 in the site's top 10 markets, which include Dallas, Seattle, Chicago, Atlanta, Los Angeles and Detroit.

Many landlords are also listing on Los Angeles-based Bidrent.com, a subsidiary of YellowPages Online Corp. The Web site that launched officially in August pits would-be tenants in cities across the nation against each other in bidding wars.

Spokesman Robert Roth said the company doesn't keep track of auction outcomes, but some landlords have seen asking rents increase, albeit modestly, after using the site.

Property investor Rachel Morton recently listed a one-bedroom condo in the trendy Westwood neighborhood of Los Angeles for $1,750 a month. An auction on BidRent involving at least seven people drove the price to $1,800 - $100 higher than the previous tenant was paying.

"Although it was a minor increase, it was still an increase," said Morton. "It went fairly quickly. I was really surprised."

Harold Parton, another Los Angeles-based property investor, saw similar results.

He listed a two-bedroom, 1 1/2 bath apartment in North Hollywood for the rock-bottom price of $600, although he was hoping for $1,100. The ad drew about eight bidders, who eventually kicked up the price to $1,130.

Another Parton listing - this one for a two-bedroom, two-bath apartment in Westwood - didn't yield a better price. Bidders ignored his rent-it-now price of $1,700 a month and only ratcheted up the price to $1,295 - well short of his goal of $1,500.

"For me, the time factor is important," said Parton, who co-owns 24 rental units. "It's really supply and demand."

The surging demand has also benefited owners and operators of large apartment complexes, such as Alexandria, Va.-based AvalonBay Communities Inc., which has more than 41,000 rental units across the U.S. The company said its revenue rose 6.6 percent in the quarter ended June 30, compared to the same period last year.

Metropolitan areas of California, where the market for homes and condos has seen annual sales and price declines, have shown some of the biggest rent increases.

In five counties around the San Francisco Bay, rents rose 7.5 percent in the third quarter to an average of $1,443, according to Novato, Calif.-based research firm RealFacts Inc. In Southern California, the average rent paid in September in Los Angeles and Orange counties rose 7.4 percent to $1,546, RealFacts said.

Competition for units has grown along with the rent.

Zimmerman and her roommate, Camille Formosa, combed rental listings for about a month and put out feelers to friends while searching for a new place. They checked out at least 15 apartments - but to no avail.

"You have open houses and there are like 15 to 20 people looking at the place," Zimmerman said. "Even in the places that are semi-decent, you have everyone going up there, getting an application, offering money to the landlord to take it."

[SmithL]

The idiot politicians can pass all the laws they want, but they can't repeal the law of supply and demand. If they want the price of apartments to go down, they need to increase the supply.

So far, everything California governments have done has restricted the supply. That includes rent control, all forms of tenant rights, and those silly requirements to build "affordable" housing. As long as they continue to punish builders and landlords, they are forcing prices to go up.

If they really wanted prices to go down, they'd leave the builders and landlords alone, and let the free market take over.

[pissant]

I thought the economy was collapsing. Guess not.

[A CA Guy]

If all these arm loans and other inventive loans are taking their toll, I would agree that at first people would demand more money, but demand will probably send that to the toilet IMO.

[A CA Guy]

If all these arm loans and other inventive loans are taking their toll, I would agree that at first people would demand more money, but demand will probably send that to the toilet IMO.

[redgolum]

Rent control is a great way to make sure there are fewer land lords who want to rent.

[Disturbin]

I like how the "demand" for apartments in Southern California comes from Katrina evacuees, expansion, even visitors from the Black Lagoon -- anything but the 30 million illegal aliens.

[L98Fiero]

LOL! Good catch.

[FormerACLUmember]

Rent control is the second best way to destroy the supply of rental apartments. (The best way is B-52 carpet bombing)

[Jaysun]

Idiot renters. You can't build equity in an apartment. You can't make improvements on an apartment. And you can't get several thousand dollars back at tax time by writing off interest paid in an apartment. Idiots. Rent away.

[glorgau]

This example given is in San Francisco, where they still have rent control. The supply of apartments is artificially limited.

I live on the Penninsula, and one can very much negotiate with a landlord.

[Jackson Brown]

This will help hasten the end of the RE downturn.

Renters waiting for housing prices to drop will see the drop is little and slow. Then they will see all that money going down the drain that could have built equity and tax deductions, in a house, even if that house was not a bargain.

There are STILL more households than houses.

[billhilly]

It is amazing how the markets work, and I have been around many years to observe them. If the market sours on sales, and more people want to rent instead of buying, guess what happens? Reality sinks in, and thoughts turn to wasted rent payments, a very real thing. Rent payments rise to the level of mortgage payments with no tax advantage, and no wealth building opportunity, so once again, the housing market soars.

[scory]

Agree with the general thrust of comments. Government efforts to "make things right" have this nasty way of making things much worse.

I remember the last place I rented (along with 3 other people) in San Francisco. It was a flat located on California street about 1/2 block west of Grace Cathedral. The Fairmont and Mark Hopkins hotels were a block up and the Masonic Auditorium was across the street from the cathedral. Four bedrooms and two baths, large living room and adequate kitchen. $475 a month (total -my share was about $130 a month after adding in utilities). This was a long time ago. You couldn't rent a broom closet in that area for that amount today.

[jrushing]

People who might have bought homes a year ago settle for apartments while they wait for housing prices to tumble.

In the quarter ended Sept. 30, the average advertised rent reached up 3.9 percent over the year-ago period, according to an analysis of 75 markets.

Seems in line with inflation.
Why would someone "settle" for apartments?

If they could have bought a house a year ago, the price may have dropped to the 1 year ago price.

I have seen several articles about increased rental apartment demand. What's up with that?
Maybe the demand is caused by the illegal aliens???

[Alberta's Child]

For some of us, renting makes more sense than anything else. The condo in Los Angeles that rents for $2,000 per month would probably cost $3,000 per month to buy right now (when you add up the mortgage, maintenance fees, taxes, etc.). Paying $2,000 in rent every month and investing the other $1,000 is a very smart move -- especially if you're talking about people without kids who don't feel like settling down.

[ItisaReligionofPeace]

You also can't lose 40k in equity in a receding real estate market. Buying can be good, but only if it fits your goals. What if you plan on moving in a year or two? Closing costs, maintenance, etc.

[Jaysun]

For some of us, renting makes more sense than anything else. The condo in Los Angeles that rents for $2,000 per month would probably cost $3,000 per month to buy right now (when you add up the mortgage, maintenance fees, taxes, etc.). Paying $2,000 in rent every month and investing the other $1,000 is a very smart move -- especially if you're talking about people without kids who don't feel like settling down.

I'm afraid that even in the case you mentioned renting is a worse deal. You can do the math. If you're in a city for a few months, maybe. But other than that you should buy. Almost always.

[patton]

I know a guy who is an excellent scientist, quite wealthy, insists on renting. When I asked him why, we spent an afternoon doing the "what if" cases.

In his circumstances, renting is cheeper.

Point is, every situation has it's own peculiarities.

[Jaysun]

You also can't lose 40k in equity in a receding real estate market. Buying can be good, but only if it fits your goals. What if you plan on moving in a year or two? Closing costs, maintenance, etc.

The cases in which renting are better than buying are so rare that they don't merit mentioning. Who moves to San Fransisco Bay only to move 3 months later? Some people, maybe, but most would be better off buying.

[Jaysun]

I know a guy who is an excellent scientist, quite wealthy, insists on renting. When I asked him why, we spent an afternoon doing the "what if" cases.

In his circumstances, renting is cheeper.

Point is, every situation has it's own peculiarities.

You can "what if" yourself to death. Perhaps your friend's situation does call for renting. My point is that in most cases renting is stupid. There are rare exceptions, but there are a lot more renters out there than there are exceptions.