Are rents really going up? Do we have actual proof of this? Here in UTC, it doesn’t seem that apartment rents are going up (not sure about houses). Craigslist shows several places with reduced rents or with rent rebates. In fact, it appears that there is a lot of competition for renters in this area.
As near as I can tell, there appear to be three groups competing with each other for apartment renters with another group coming online soon. The first group is the apartment complex owners. Many of these guys appear to be offering rent rebates in a desperate attempt to prop up the market value of their apartments. For example, a complex might have a two-bedroom listed for $1600 with a one-month rebate on a one-year lease. I’m assuming this rebate allows the complex to report the market rental value of the apartment as $1600, when in actuality it is only $1467.
The next group is the owners of the complexes that became failed condo conversions — places like The Venetian, The Verano, and Villa Vicenza/Nobel Court. The owners of these complexes jumped on the condo conversion craze at the top of the market. They assumed that they would be able to flip the entire complex one unit at a time to greater fools. Wrong. Now these guys are having to rent out the units that didn’t sell. I wasn’t in the market for a rental before these condos were converted, so I’m not sure what the rent was back then. However, I would be surprised if the rent has gone up enough to account for inflation and the value of the upgrades. An example of would-be converters now being forced to rent out can be found here.
The next group is the greater fools who bought the individual converted units as an “investment.” Many of these people had planned to flip, but are now forced to rent out their unit so that they can pay a small part (maybe half if they’re lucky) of their mortgage + taxes + HOA fees + other ownership costs. These poor fools are competing for renters not only with other apartment complexes, but many times with the condo converter they bought their unit from. That would really suck. If you are trying to rent out your failed flipper unit at the Verano, you are forced to come in under the rental price that the Verano condo converters themselves are advertising for similar units.
The next group is coming online now: La Jolla Crossroads. These are new apartment complexes that are currently being built right next to I-5. I’m not sure how many units are coming online there, but it looks like a ton. This added supply will further act to decrease rents in the UTC area. I believe the next batch of these units is coming on the market in April with more to come after that.
So, at least in the UTC area, I don’t see prices for apartment rentals going up. Not only is there a lot of new capacity coming on the market, many of the failed flips/conversions are coming back on the rental market and should continue to drive rents down.
