When it comes to housing, New York, Portland, Ore., Seattle and Washington, D.C., all have something in common. Prices are actually starting to come down.
Many of the nation’s hottest real estate markets, construction booms have brought a recent reduction in average monthly rents. Not by a ton -- and not enough to make any of these cities into bargains -- but enough to relieve at least some of the pressure on renters. It’s simple economics. Increased supply is doing a better job of meeting demand. Last year, apartment construction reached a 30-year high, with much of the growth concentrated in major cities such as Dallas, Houston and New York. “We have seen an uptick in vacancy rates and that’s having an effect on rents,” says Michael Neal, an economist with the National Association of Home Builders.
Seattle’s vacancy rate is now 5.4 percent, which is the highest it’s been since 2010. Rents are going down fastest in the neighborhoods in and around downtown, which have been the most in-demand and, consequently, have seen the most recent construction. But even a drop in rental costs of about 6 percent in those neighborhoods doesn’t feel like much of a break when prices have shot up by more than 50 percent over the past five years. Around the country, average rents are still increasing, although only at about half the rate of recent years. A majority of mayors surveyed recently by Boston University continue to believe that housing prices are the top reason people are leaving their cities.
There are other reasons renters should hold off on celebrating. For one thing, the supply growth in some of the hot cities may have peaked. Housing starts reached high levels in 2015 and 2016, which is why more buildings were completed last year. Fewer are coming online now. So many more apartments have become available that both bankers and builders are wary about putting up more. “Developers think that demand is starting to taper off,” says Jonathan Spader, a researcher at Harvard University’s Joint Center for Housing Studies.
In the major cities, the vast majority of apartments being built are designed to serve luxury or at least high-end markets. There’s very little in the way of new housing that’s considered affordable. Nationally, the market for rental units costing less than $1,250 a month is still tightening. “We’re not producing affordable housing and we’re not producing enough housing for the demand,” says Laurie Goodman, vice president of the Housing Finance Policy Center at the Urban Institute. “We’re producing about 350,000 fewer new units a year than we need.”
Still, increased supply of any sort, even luxury housing, can help to keep prices under control. Developers may be less gung-ho to build than they were a couple of years ago, and they aren’t much interested these days in lower-cost construction. But they’ve shown they will respond to high levels of demand and every well-paid tech or finance worker who moves into a spanking new building is one less person driving up the cost of existing housing stock.