Home Sweet (rental) Home

Rental housing in Greater Des Moines is booming. No surprise there.

But in a recent meeting with the leadership team from Hubbell Realty Co., we got to talking about some of the reasons for the high rental demand and about just how high occupancy rates are.

Rick Tollakson, Hubbell’s president and CEO, said occupancy rates for the metro area are at nearly 100 percent. And that’s not just  downtown, as I initially assumed, but for the whole of Greater Des Moines.

Of Hubbell’s approximately 3,000 multifamily units in the area, only about 20 to 30 units are currently available to lease. 

With demand so high, Hubbell is planning to construct an additional 1,000 multifamily units in the next 18 months. Hubbell’s best estimate was that about 4,000 multifamily units were planned to come online through the end of 2014. 

That would be a 12 percent increase in multifamily housing, if you go by Hubbell’s estimate of about 34,000 multifamily units currently in the area. Why just an estimate? More on that in a bit.

I thought the reason Tollakson pointed to for the high demand was interesting. He said there are a number of new household formations occurring. The difference, he said, is that not only are many of the new households not rushing out to buy a house, but many of the new households aren’t what you’d typically think of as a new household. 

As the economy has improved, people who had been living with a roommate are preferring to have their own apartments. So in other words, through tougher economic times, people perhaps contracted household numbers for the economic benefit of splitting rent, but now have the ability and desire to live without that pesky roommate who always finishes and leaves the empty milk carton in the fridge.

Hubbell cited a new study that it said projects the demand for multifamily housing to continue for the next five years.

I can’t speak to the roommate issue, but I know I’m a good case study for the recently married couple who hasn’t chosen to buy a house and instead is renting downtown. In fact, the discussion reminded me of a piece I wrote a year ago that hypothesized why I and others in their late 20s might be forgoing homeownership. Read it here.

That piece was bouncing off a national study that was trying to determine whether the lack of new young professional home buyers was a short- or long-term trend. It showed that people ages 18-30 still aspired to be homeowners, but they just didn’t want to be homeowners right now. 

I think that still holds true. My wife and I certainly aspire to own a home, and we do have the means. But for now, while we don’t have children, we love the flexibility, proximity and ease of renting versus owning. I often joke that I’m keeping a running list every time my father or a co-worker talks about some problem with their house - a blown-out furnace, the need for a new roof, a flooded basement. I don’t have to deal with those things. And, heck, I don’t have a lawn to mow, and as a guy who is extremely allergic to grass, I’m grateful for that.

I’m sure my views will change when my wife and I begin to talk about children. Suddenly having a lawn, proximity to other families and access to good schools will make homeownership more appealing. Until then, renting seems just fine. 

UNLESS ... rents reach a tipping point.

I asked whether the high demand is resulting in inflated rent prices, and Tollakson said that was very much the case. He also pointed to inflated construction costs as a reason. According to the CBRE|Hubbell Commercial apartment survey, rents in the central business district for two-bedroom apartments increased 10 percent from 2013 to 2014. See the report, here.

In 2011, my wife and I rented a 1,300-square-foot two-bedroom apartment downtown. We had yearly rent increases, and by the fall of 2013, we were facing yet another rent increase. Our 2014 rent was going to be 15 percent higher than it was when we first moved in. We ultimately moved to a new apartment downtown - it was a bit smaller, but saved us a little bit of money and offered some nice new amenities - but we fully expect rents to continue to climb. 

I know in comparison to other downtowns, what we have been paying for nice downtown apartments is still a great deal. But at what point do my wife and I reach a tipping point where the value of what we get for a mortgage is substantially higher than what we get for paying rent?

I don’t think that point is that far away for us, and I wonder how many others might be making the same evaluation. 

A Fragmented Market

I alluded above to the “estimated” 34,000 multifamily units. Tollakson said it’s hard to know for sure how many total units there are because of how fragmented the multifamily housing market is. Nobody owns more than 4,000 units in the market. To get to its estimate, Hubbell looked back at an old survey and extrapolated based on what has been added/subtracted over the years. So, bottomline, that’s not a perfect number, but I found it interesting there isn’t an exact number out there.

Downtown Since 2012

While writing this, I was reminded of an article reporter Kent Darr wrote two years ago on the leading edge of the downtown apartment boom. At that time, 600 units were planned in the next two years. Vacancy rates were at 2.1 percent in 2012 and they rose to 2.7 percent in 2013, before dropping again to 2 percent in 2014, according to the 2014 apartment survey. It was 5.9 percent in 2011. Read Kent’s article here: http://bit.ly/1vJ5r7O