For awhile, it seemed that the housing bust would be good news for apartment building owners: The rash of foreclosures would increase demand for affordable rentals. New York-based research firm Reis Inc. reported that rental rates adjusted for landlord concessions fell by 0.4% year over year in the fourth quarter of 2008. For the year however, rates were up by 2.2%, a drop from the 4.6% increase last year.
According to The Wall Street Journal (subscription required), "Even cities that posted healthy rent increases in early 2008, including San Francisco, Seattle and New York, are no longer immune from the chill as job losses in the professional-services sector reduce demand for apartments. In periods of rising unemployment, would-be renters double up in apartments or move in with friends and families."
More and more landlords are offering free months of rent and lower fees and security deposits as they look to compete with single-family home owners who are renting out spare bedrooms or entire houses.
But long-term, the slowdown in new construction will probably benefit rental property owners once the economy turns around, and falling property prices are providing new investors with more favorable capitalization rates -- the ratio of the property price to the annual rent collected -- than have been available in years.
For people who are financially secure, it's probably not a bad time to invest in real estate.
Apartment operators battered by weak housing, too