Renters are back in force and in a big way. Last year a record 6,400 additional apartments were rented in the Twin Cities metro area, causing the number of empty apartments throughout the region to fall from 7.3 percent of total inventory in 2009 to 3.8 percent by the end of last year, according to a quarterly report from GVA Marquette Advisors.
The gains, which weren't accompanied by rent increases -- many expect those will come next year -- were significant, because during much of the housing boom rental apartments suffered as homeownership rose. In 2009, for example, vacancy rates spiked to a five-year high in large part because of so many renters -- and prospective renters -- gave up their apartments and doubled up with friends and relatives.
Now though, growing jitters about buying a house, which has caused the homeownership rate to fall steadily, and signs of economic improvement are leaving prospective renters more emboldened to make a move.
Vacancy rates during 2010 for various prices ranged from 2.8 to 4.9 percent, but there was no correlation between the price of the unit and the vacancy rate. Even upper-bracket apartments with monthly rents of more than $1,500 had only a 4.9 percent vacancy rate -- the same as for apartments priced at $501 to $600.
And it's showing in every corner of the Twin Cities metro area. Downtown Minneapolis and St. Paul are among those neighborhoods where the vacancy rates are lowest, but even in some of the outlying suburbs vacancy rates have fallen significantly. In the southwest region of the metro, for example, vacancy rates declined by half. And in other areas the rate fell by at least a couple of percentage points.
The average rent during the fourth quarter was $908, up just $2 from the year before.
While prices have remained stable, concessions -- or incentives to rent -- have largely gone away because many landlords are now in the driver's seat.
And because for much of the past decade landlords have had to compete with a robust housing market, an economic recession and a federal home buyer's tax credit, there's been very little new construction, putting downward pressure on supply in recent months.
During 2010 only 582 new units were added to the market, including the Ellipse, a 132-unit apartment building in a bustling south Minneapolis neighborhood. Brenda Hvambsal, marketing director for Steven Scott Management, said that since opening in September the project is now 93 percent full, in large part because of demand from people who might have bought a house in the neighborhood, but are in a wait-and-see mode while they evaluate their options.
"They're taking their time to decide what their next move will be," she said. "They feel like renting is a good safe decision right now."
Multifamily has been a bright spot on the Twin Cities construction; it's represented about half of all new planned housing units. In 2011 GVA's Brent Wittenberg expects 870 new market-rate apartments to be completed in the Twin Cities metro area, not including hundreds of new senior housing and low-income apartments. At the current absorption rates -- or the change in the total number of occupied units -- he said, the market could support more new units.
"We're projecting that demand will outstrip supply increases and that will hold vacancy rates down," Wittenberg said. That's one reason why GVA predicts a 3 percent to 4 percent price increase.
Tina Gassman of the Minnesota Multi-Housing Association said that despite increasing demand, many rental property owner aren't popping any corks. She said that several years of low occupancy coupled with rising costs mean that many owners are still in financial catch-up mode.
"They're trying to make up for past losses," she said. "So they're not dancing yet."
Jim Buchta • 612-673-7376