Economics of Apartments show demand increasing - Vacancies remain low and rents rise in Metro Denver
DENVER (Oct. 27, 2021) – This week, the Apartment Association of Metro Denver (AAMD) released 2021 third quarter results from the Denver Metro Area Apartment Vacancy and Rent Survey, conducted by the University of Denver’s Daniels College of Business and Colorado Economic Management Associates.
The Metro Denver apartment vacancy rate remains extremely low at 3.8%, a slight increase over last quarter’s near-record low of 3.7%. Despite the small increase, vacancy rates in Metro Denver are historically low. “The Q3 and Q4 represent the first consecutive quarters of sub-4% vacancy for apartments in 27 years,” reported Mark Williams, AAMD’s Executive Vice President, “these low vacancy rates come from increasing demand and limited supply of apartments, which is also driving record rent levels.”
The report shows a 4.5% quarterly increase in rent, with an average rent price in Metro Denver of $1,726. Average rent is now over $2 per square foot for the first time, at $2.03. The year over year rent change is 13.5%. The median (or mid-point) rent in metro Denver, is $1,660. These record rent levels, though remarkable, are not a local condition, as metropolitan areas across the country are experiencing similar pricing trends.
“From the Apartment Insights report, we know there are approximately 32,000 new apartments under construction, but the time it takes to build has increased from under 20 months to now over 30 months,” Williams explains, “There are another 58,000 apartments in some phase of planning consideration, “but it’s the speed at which those additional projects get approved and built – that will make an impact to flattening out rent levels.”
There are currently 373,639 apartments in the metro Denver area. In the third quarter 2,400 new units were added, bringing the new unit total to 5,754 for the year to date. Total net absorption for 2021 reached 14,365 units, surpassing 2018, the highest year on record.
Strong resident demand is an overall positive indicator for Metro Denver’s housing market, though it signals on ongoing need for more apartment homes. Construction of new units is clearly an important factor to rental housing affordability. As Denver emerges from the pandemic, recuperating demand has guaranteed to cause an increase in rent prices, as the housing market readjusts to a pre-pandemic norm. “The current short term decrease in vacancy rates and corresponding increase in rent costs can largely be attributed to the recovery from the depressing impact of the virus closures on housing,” explains Andrew Hamrick, vice president of Government Affairs for the Colorado Apartment Association, “the fact that rental costs go up much slower than the cost of purchasing a housing unit, cannot cause us to take our eyes of Colorado’s need for more housing units to meet growing demand. If we want our children to be able to afford to live here, we must pressure local governments to allow more housing units to be built.”
While Rents are at record levels, and since 2015 median rents have increased by 33%, the price of a single family home increased by over 100% during that same time frame, demonstrating that apartments are still the most affordable housing in Denver.
In addition to natural forces in the marketplace, several unnatural forces have compounded the numbers. Some of the extenuating factors include the unemployment benefit policies which have led to abnormal inflation, raising consumer prices and creating a considerable new cost burden for all Coloradans – rental housing providers included. The state’s labor shortage is increasing the costs of construction, maintenance and custodial services, an additional new cost burden on Metro Denver’s rental housing providers. All of these factors, played a role in Q3’s increase in rent prices.
With multifamily housing as the densest, most sustainable and most affordable housing that exists - more multifamily housing is the key tool for dealing with Colorado’s housing shortage. “If we need housing to be more affordable, we have to make it easier and less expensive to build normal rental housing,” says Cary Bruteig, from Apartment Insights, “Denver and surrounding cities need to increase the speed of obtaining zoning approvals, and not add additional requirements.”
Rental losses from delinquency, bad debt and concessions has risen from a fourth quarter 2020 figure of 4.4%, to now at 13.4% for the third quarter. These are the highest rent losses in more than 13 years. The report’s author Ron Throup, Associate Professor with the University of Denver, explains “This trend is a condition to monitor as unit turnover, partly a result of the re-tenanting after losses or forgiveness from Covid related rent consideration. At some point these rental loss recognitions will clear and the rental loses are expected to subside.”
The Denver Area Apartment Vacancy and Rent Survey reports median and average rates, and, as a result, there are often differences in rental and vacancy rates by apartment type, size, location and age of building/complex. These variances are more pronounced as the vacancy rate has fluctuated over the last several years. All information is based on data received for the month of September, apart from resident turnover and rental loss data, which is for August 2021.
About the Apartment Association of Metro Denver
The Apartment Association of Metro Denver is among the largest multi-family housing trade associations in the country, representing and supporting over 373,000 apartment homes in Denver. For more information about AAMD, please visit www.aamdhq.org.