Scramble for apartments
Apartment hunters may have to go on pounding the pavement awhile longer.
To apartment developers and investors, however, the rise in popularity of the apartment as a long-term option or necessity is good news.
Vacancy rates across the country average 5 percent as more people compete for apartment space. Over the past decade, the number of households has increased dramatically as more people choose to live alone. This means there are more individuals looking for good rental housing.
While many apartment hunters are seeking reasonable rents, even finding a luxury unit these days can be tricky because of the high demand.
According to a survey by Jerry Metzger, chairman of the Commercial Investment Council of the Realtors National Marketing Institute, half of the certified commercial investment members polled saw apartments as the best investment route right now. For the consumer, this may mean more available apartments, in all price ranges, in the future.
From the developer's standpoint, Mr. Metzger suggests, apartments - with geographical exceptions - can still be bought under present-level construction costs, including refurbishing. ''In most areas,'' he adds, ''rents haven't reached their highest level. As time goes by, rents will go up to the level where new construction is possible.''
Metzger sees it as a long-term situation. ''The lack of construction over the past several years has created demand that hasn't been met by supply,'' he says.
Rentals in most areas of the United States are in high demand among consumers for many reasons. Some who by this time would have bought a house or condominium can't afford to carry the cost of a mortgage and are forced to continue renting.
Many young professionals choose the flexibility that an apartment offers them , or else they don't want to be burdened with large monthly payments on a condo that might not increase in value as fast as they think it should. With high starting salaries, this group can often afford more expensive apartments.
Richard Bland, president of Hunneman Investment Management Company, Boston, says that ''anyone with empty apartments right now is able to keep them rented.''
The growth in the number of American households is significant factor. Mr. Bland cites a Hunneman study which found that, while the population in the area between Cape Cod, Mass., and Narragansett Bay, R.I., has grown by 10 percent over the past decade, housing units have increased 26 percent.
He acknowledges that in tight economic times, individuals do tend to rent together or live with parents longer. He says the tendency to disperse is the overall trend, however, and he expects the trend to continue, expanding the need for apartments and smaller housing.
Not everyone agrees with this outlook. James O'Brien, of General Investment Development Company and president of the Rental Housing Association of the Greater Boston Real Estate Board, says that there are too many financing problems to make the mid-range apartments a viable investment.
Mr. O'Brien points out that the Greater Boston area now reports a vacancy rate of about 8 percent, much of it in the mid-range units. This is partly due to declining college enrollments in the area. Those students who do rent usually double or triple up. Also, fewer people have been coming to the Boston area to work because of a slowdown in the high-technology industries.
Too, from the average consumer's viewpoint, there is an ''arbitrary rent'' beyond which, O'Brien suggests, most are unwilling to go.
''You have to pay too much to rent a decent unit,'' he says. And, if interest rates do continue to decline and the economy improves, ''I don't see that you can put anything up that people will be willing to live in if you have low interest rates and they can buy.''
Nevertheless, according to Robert Gough, an analyst with Data Resources Inc., Lexington, Mass., rental units are going to become more attractive to consumers because home prices will not be increasing at the rate they did during the '70s, which was an exception to the long-term rate of increase in home values. Therefore, he adds, the outlook should continue to brighten for the interested developer.
New construction is currently feasible only in the luxury market, however. In lower-rent units, the gap between rent and apartment cost is too wide to make them an attractive option.
Judy Glasser, marketing director for the luxury Greenhouse Apartments in Boston's Back Bay, says the apartment vacancy factor for the downtown area is almost zero and there are waiting lists for the more expensive apartment buildings.
The market for the Greenhouse, she adds, ''is young professionals for whom it's a life style thing. They want the amenities of living in the city, a place to park their car, be able to walk everywhere, and enjoy the building's swimming pool. Also, we expect many older people who want the good location as well as the high security we offer.''
Apartment rents in the Greenhouse run from $675 to $800 a month for one bedroom up to $1,450 to $1,600 for three bedrooms. The Greenhouse, in fact, is trying to create much more than just a temporary place to live and for this reason is offering long-term leases.
''We want long-term tenants,'' Ms. Glasser says. ''And we have no intention of converting to condominiums. There are always people who want to rent.''
Other luxury developments are enjoying success as well. Hunneman's Bland says that the Devonshire, an apartment complex going up in downtown Boston, has commitments on 100 units out of 478 - eight months before occupancy. The rent: $ 900 to $4,000 a month.
Bland asserts that vacancies are a concern only in middle-price apartments. ''People who would buy but aren't doing so are not going to settle for mid-priced apartments,'' he says. ''They'll go for the top.''
He says that if interest rates go down, or if there's more in the way of creative financing available to builders, he expects construction will begin in the mid-range sector.