Peter Johnson started shopping for an apartment in Minneapolis in May, and grew a little worried when the listings on Craigslist were few and far between. Twice, apartments rented before he even had the chance to look at them. It was so difficult, he hired a company to help with the search.
"Apartments are flying off the market," he said.
Indeed, apartment vacancy rates that are approaching record lows are a sign of just how middling the economic picture has become.
People who moved in with parents or found roommates during the Great Recession are now confident enough to secure their own place -- a trend some in the industry refer to as unbundling. But they're not nearly confident enough in the economy to buy, even with historic low interest rates and home prices as low as they've been in more than a decade.
"Renters haven't learned yet that they should buy now," said Joe Grunnet, a Minneapolis real estate broker.
In the Twin Cities, the average apartment vacancy rate fell to 2.4 percent, half of what it was a year ago, according to Marquette Advisors, outpacing even the national numbers. Across the country the average vacancy rate during the second quarter fell to 6 percent.
In the downtowns of both Twin Cities, the rental market is even tighter. In downtown Minneapolis, the average vacancy rate fell from 6 percent a year ago to just 1.2 percent during the second quarter. In downtown St. Paul, vacancies plummeted from 7.1 percent a year ago to .08 percent in June.
This year, in particular, job growth in the area has helped fuel the declines, said Brent Wittenberg, vice president at Marquette. In the Twin Cities metro area during the first half of this year, 16,400 jobs were created, according to the Minnesota Department of Employment and Economic Development.
"People are coming from out of state," said Lisa Moe, president at StuartCo, which manages thousands of apartments in the Twin Cities. A 344-unit St. Paul building the company is managing was only 30 percent occupied four years ago. Today it's full.
Amy Sack, for example, just moved back to the Twin Cities from Chicago for school and work reasons. She was shopping for an apartment in a neighborhood on the edge of downtown St. Paul that would allow dogs. She called or e-mailed to get information on about 25 places, but only heard back from four.
By the time she had sent her mom to preview apartments for her, they'd be rented out. "It was crazy," said the St. Olaf graduate.
Eventually, they found a two-bedroom near Grand Avenue for $950 but had to abandon the idea of getting a dog.
"We just felt lucky to get a place," she said.
For landlords, the tight market is sweet revenge. During much of the last decade, homeownership rates hit record levels as droves of renters traded their leases for mortgages, causing vacancy rates to skyrocket and homeownership to hit record levels. Landlords had to cut expenses, while attracting renters with free rent and other perks. Vacancy rates hovered at more than 7 percent.
Construction of apartment buildings ground to a halt as developers focused on building new housing and landlords focused on cutting expenses and retaining renters. In some areas the number of apartments actually fell as apartments were converted into for-sale condominiums.
The situation is so foreign to some landlords that many are simply reveling in their ability to stop offering rental concessions.
"People are just enjoying full occupancy," said Moe. Her company's vacancy rate is less than 2 percent.
Rents, surprisingly, have seen only modest increases so far, rising to $921 a month in the second quarter, up 2.1 percent from a year ago, according to the Marquette survey. Experts expect that to come to an end.
Gina Thelemann, a communications specialist with a local real estate company, is already seeing it. Thelemann shares with a roommate and is getting her own apartment. She's not finding many listings and prices are noticeably higher than when they rented their place a couple years ago. There's a one-bedroom for rent in her building for $900 a month, just $200 less than what she paid for their two-bedroom unit when they moved into it. And though the rent on the two-bedroom is now $1,200 per month, the landlord warned that he could easily charge $1,400 a month.
At those prices, Thelemann knows that owning a house might be cheaper, but being recently out of college, with debt, she's not ready.
"I'm just like everyone; I would kill to buy today," she said. "But it's just not in the cards right now."
More on the way
As the vacancy rates have plunged, developers are getting into the game. Throughout the Twin Cities, and especially in Minneapolis, thousands of new units have been proposed and only hundreds are under construction, leaving some wondering at what point demand exceeds supply. This year, Wittenberg said, about 800 to 900 units are scheduled for completion.
Last year the market absorbed an additional 6,000 units that weren't occupied the previous year, and there's an expectation of another 4,500 to 5,000 this year.
"I think there's room in the market for new developments. I'm not too concerned right now," Moe said. "If we have some job growth we could be out of housing."
Jim Buchta • 612-673-7376