Rents Rise as Apartment Market Is Squeezed
Wednesday, July 5, 2006
The apartment market in the Washington area has become one of the tightest in the country, and rents are rising briskly as some affluent residents decide to rent rather than buy in what they fear is an inflated real estate market.
The surge of well-to-do new renters is attracting developers, and at least 4,000 units that had been planned as condos will instead be leased as rentals over the next two years, according to a new analysis by Delta Associates, an Alexandria real estate information company.
Among the renters is Randell Rogers, 40, a systems engineer who earns $127,000 a year and recently sold a house. The housing-sale slowdown and sky-high prices have made him wary of buying again, and he is renting a two-bedroom townhouse in Herndon for $1,400 a month, about half of what he thinks he would pay each month if he bought a similar townhouse for about $450,000.
"It makes more sense to rent this year while values keep going down," Rogers said. "Even with the tax break, it doesn't make sense for me. It's just not reasonable to buy."
Other affluent families are doing the same. Laura Holliday, 33, and her husband, Jason, 34, both analysts for the federal government, tired of the chores associated with homeownership, the heavy mortgage payments and the hassle of commuting each day to the District from the Mount Vernon area of Alexandria. They sold their house in July 2005 and moved to a townhouse in the Clarendon area of Arlington, where they can commute to work by Metro and have more time to spend with their two young children.
"We probably won't rent forever," Holliday said, "but for now, we are definitely enjoying renting."
As they and others lease instead of buy, rents have risen 7 percent in the past year, according to a new analysis by Delta Associates. In suburban Maryland, rents for luxury high-rise apartments rose 11 percent.
About 6,500 additional renters leased units in the past year, up from about 4,400 in the previous year, according to Delta Associates. The Washington area has one of the lowest apartment vacancy rates in the nation, down to 1.7 from 2.4 percent a year ago, compared with a national average of 5.7 percent.
The rent increases are confounding industry expectations that rents would fall because of the huge number of new condominiums, many of which were sold to investors who have put them up for rent. Experts say prices would rise even faster without the additional condos.
Even so, rents are expected to rise 5 to 9 percent annually over the next few years, said economist Gregory H. Leisch, chief executive of Delta Associates.
More than a half-dozen projects have recently shifted from proposed condo complexes to rental apartments. Delta Associates projects about 2,000 units are being shifted or will remain as rentals this year, with another 2,000 going that route next year.
"Every large developer I know is working on a project that was expected to be condo -- and that they are now taking back to apartments," said Mark Coletta, regional partner of Fairfield Residential LLC, which is building about a dozen projects in the Washington area. "That's what everyone is doing."