What apartment bubble? It’s actually getting harder to find rental units in the Twin Cities

Thousands of units have come online in the downtowns, Uptown, near the University of Minnesota and throughout the suburbs — and construction cranes are everywhere. There has been talk for months of an apartment bubble or glut. Despite that, it’s getting harder to find an apartment.

The Twin Cities metro area’s vacancy rate dropped from an already low 2.8 percent at the beginning of the year to 2.4 percent during the second quarter, according to a report by Marquette Advisors. A healthy apartment market has a vacancy rate around 5 percent. The low rate has given landlords more power to raise rents.

So what’s behind this confounding trend? Simple supply and demand. Blame population growth and a good economy that’s creating more jobs and changing the real estate market. “There’s been a bit of a shift in for-sale housing,” says Mary Bujold, president of Maxfield Research & Consulting. “If somebody is looking for their first home at a modest price point, they’ll find the market is quite tight.”

That means a higher percentage of households remain in the rental market, jostling for inventory with newcomers to the metro and downsizing seniors. Developers are following the money and building for those who can afford new space in prime locations.

Twin Cities BusinessGiven the relentless pace of so-called luxury developments — Marquette Advisors counts 3,800 units expected to come online in 2017 and another 6,000 in 2018 — Bujold predicts a softening in the upper end of the market in the next few years. New developments clustered in high-price areas will likely become incentive-driven to stay competitive.

But don’t expect such luck for those in the lower and middle tiers of the unsubsidized rental market; prices are going to keep rising, Bujold says. There’s simply too much demand and not nearly enough new supply.

“The only way there’s going to be a softening there is if we can deliver lower-priced housing without income restrictions to people in the middle of the market and deliver it in substantial numbers.”

This article is reprinted in partnership with Twin Cities Business.

Comments (3)

  1. Submitted by Anton Schieffer on 12/11/2017 - 02:52 pm.

    What?

    “There has been talk for months of an apartment bubble or glut.” Who exactly is saying this? We’ve been in a housing shortage for over 5 years now and I’ve never heard anyone say that there are too many apartments to choose from.

    • Submitted by Addy Free on 12/11/2017 - 05:02 pm.

      different circles I suppose

      It’s a common enough refrain. I’m sure no fewer than ten buddies have said it to me. None of them are housing stock experts though–just armchair economists–but there has been talk for months of an apartment bubble or glut. I don’t know what the anecdote algebra works out to here… =)

  2. Submitted by Paul Udstrand on 12/12/2017 - 09:32 am.

    Yeah…

    What bubble indeed. Talk for “months” yadda yadda. Unfortunately you can’t trust these “analysis”, remember, these are the same guys who kept “predicting” the housing market would recover in 6 months while the markets tumbled for years on end. I’m afraid as often as not articles like this are actually part of a marketing strategy to drive sales rather than accounts of something that’s actually happening. For some reason there’s always this cheer leading kind of flavor to business reporting that celebrates growth.

    And any reference to “simple” supply and demand should trigger a flag of skepticism specially in the area of real estate where pricing is heavily manipulated in a variety of ways. What kind of survey is used to determine these vacancy rates? Are people having trouble finding housing, or are they having trouble find “affordable” housing… there’s a difference. Population increase? Show us the numbers, is the population actually increasing or are people who already live here just trying to move around? Sure the population is increasing, but enough to fill up all this new housing?

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