The coming surge — a whopping 6,000 new units by the end of this year — will give prospective renters a slew of new options and could even halt the upward march of monthly rental payments, according to developers, analysts and real estate professionals.
“There’s going to be a paradigm shift,” said Rick Gersten, chief executive of Urban Igloo, a company that helps connect renters with local landlords. “People are going to have more choices. It’s going to be more difficult to retain tenants.”
During the economic downturn, developers drastically scaled back production of multi- family projects. But construction has come roaring back, with developers last year alone breaking ground on nearly 15,000 apartment units from Landover to Northeast Washington to Manassas — the most in nearly two decades, said Greg Leisch, chief executive of the Alexandria-based research firm Delta Associates.
Much of the building is taking place in the District, including the hot H Street NE corridor and the Mount Vernon Triangle area. But units are also springing up in the close-in suburbs of Fairfax in Northern Virginia and Bethesda and Silver Spring in Maryland.
The vast majority are “Class A” units aimed at young professionals eager to live in walkable communities near shopping and public transportation, developers say. Many boast a profusion of modern amenities, such as open floor plans and granite countertops — even waist-high mini-showers for bathing the well-groomed dog.
The projected number of new units would be more than double the number that went on the market in the Washington area during each of the past two years. And by national standards, the coming boom is exceptional — by comparison, only about 2,500 new units are expected to go on the market in New York City this year.
“We don’t even have demand in an entire year for 6,000” new apartments, Leisch said. “That’s going to disrupt the equilibrium in the market.”
The result, Leisch said, probably will be a slight decrease in average rents by the end of the year, with the potential for additional decreases in 2013. In addition, some landlords could be forced to offer concessions to entice new tenants, such as a free month’s rent.
Still ‘very expensive’
But even with the swelling supply of new apartments, finding an affordable home in the Washington region will remain a challenge, analysts said. The average monthly rent in the District is $1,501, according to Reis Research, a commercial real estate research firm. By comparison, people pay $868 a month in Atlanta, $928 in Austin, $1,085 in Seattle and $1,113 in Miami. Nationwide, the average monthly rent is $1,081.
“It will continue to be a competitive market,” Leisch said. “The rents will ease a bit. . . . But all this is relative. It’s still going to be very expensive compared to the rest of the country.”
In recent years, would-be renters have increasingly encountered higher rents, along with a shrinking universe of vacancies. Janne Clare, 50, moved to the District in July to start a new job. A Boston native who spent the past decade in Santa Monica, Calif., Clare said she began the apartment hunt as soon as she got back to the East Coast. “I literally jumped up in the morning and looked at listings.”
Five sweltering weeks, one shady Craigslist experience and almost 30 apartments later, she found her dream place: a refurbished, early-20th-century condominium in Dupont Circle. She will pay $3,500 a month, which she thought was a fair price.
“I fell in love with Capitol Hill,” Clare said. “But it was too expensive.”
Stephanie Doctrow, 22, had a Georgetown apartment-share picked out before starting her internship in the District. But when she knocked on the door last weekend, she realized the situation was not going to work.
Doctrow is now living on a friend’s couch, combing Craigslist and social media.
There’s a simple explanation for the tight market. The basic laws of supply and demand have been tilted in the landlords’ favor, with too many renters for too few desirable apartments. That has led to an unsatisfying trade-off for many prospective tenants — cough up far more money than expected in an already expensive market or compromise on factors such as location, amenities or the number of roommates.
Washington is far from the only market in the country where the rental market has grown pricier and more competitive in recent years. The housing bust drove many struggling borrowers from their homes, prevented would-be buyers from getting mortgages and made renting suddenly more attractive for many Americans. That combination, along with an increasing number of young people graduating college or moving away from home for the first time, helped create a wave of new renters across the country.
At the same time, the financial crash put a halt to countless construction projects, reducing the supply of apartments in many places at the same time that more people were looking to rent.
In a recent report, Reis found that rents had risen during the second quarter of 2012 in all 82 markets the firm studied. “Vacancy has not been this low since the wake of the dot-com boom more than a decade ago and there is a paucity of available units,” the report said.
Resilient regional economy
That’s beginning to change in the Washington region, thanks largely to the area’s resilient economy.
“The uniqueness to that market was that the recession didn’t produce any substantial job losses,” said G. Ronald Whitten, who advises apartment owners and developers throughout the country. “The D.C. economy didn’t really see the downturn in employment, and as a result of that, demand for apartments kept coming. New constructions cranked up faster in metro D.C. because the recession was shallower.”
Julie A. Smith, president of Maryland-based Bozzuto Management Co., a firm whose portfolio includes more than 100 apartment communities throughout the Mid-Atlantic and Northeast, said her firm pushed forward with new rental projects in the area even after the housing bust because of its confidence that people would keep flocking to the area for jobs.
Bozzuto is involved in a range of new developments representing more than 1,000 new units, from Crofton to Annapolis to a new community near Catholic University.
Though mortgage interest rates remain near historic lows, other property managers said they are seeing people who can afford to buy opting for the flexibility and reduced risk that comes with renting. “People can’t seem to get that down payment together,” even when a mortgage and renting offer comparable monthly payments, said Eric Suissa, director of sales at the D.C. Apartment Co.
For others, the choice has nothing to do with price.
“The X and Y generations have discovered urban living,” Leisch said. “They don’t want to own. They want to rent — regardless of income.”