Why the Rental Market Matters

We have been reading lately about New Haven's stellar rental market--either the lowest or the second-lowest vacancy rate in the country, depending upon your source.  Why is this?  And how does it relate to other real estate data?

New Haven's extraordinary occupancy rate for apartments has several causes, some of which are unique to New Haven, and some of which apply across markets nationally.  New Haven's own reasons have to do, first of all, with the large number of students residing in the region.  Students are almost always renters, and graduate students rarely live in university housing.  The second driver in New Haven is the nightlife and culture prevalent here, so that young people (and empty nesters) who work in other places in Connecticut will disproportionately choose to rent in New Haven and commute to their jobs. 

Around the country, there are certain trends that are helping rental markets to stay strong.  Of course, high foreclosure rates will result in more renters, as the people displaced from their houses won't be able to buy right away.  Also, the uncertainty of all job security means that many more workers, executives included, leave their families behind and rent in the new city until they are confident that they will stay at the job.  That trend is exacerbated by the difficulty transferees are having in selling their homes in the locations they are leaving; until they do, many must rent.  Even those who sell are renting in many instances, since they worry that housing prices have not bottomed out, and that this may not be the best time to buy a new home.

All of these factors have combined in Greater New Haven to make rentals scarce and expensive.  It also offers an opportunity for investors to buy property and rent it out, and not just the typical apartment building or multi-family house.  Single family homes make good rentals also, particularly when you can buy one for a price that allows you to cover costs with rental income.  It can even be a good alternative for those who have houses on the market that are not selling.  Many people are looking for homes to lease, not just in the center city, and it's a good time to find tenants.  This is especially true if you allow pets!  As with all types of real estate markets, there are ways to make money in this one.

Making Connecticut Business Friendly

Many people don't understand the connection between a business-friendly climate and housing prices. Connecticut is a good example of it. We have ranked dead last among the fifty states in job creation over the past twenty years--for those of you who are counting, that's far longer than the current recession. We export college students, young people, all kinds of people. They go where the jobs are. Lots of you will know where those places are, because it's where your children live.

Without new jobs, there aren't people coming into the state, or staying in the state, to buy homes. Therefore, there isn't a growing market, and there are no buyers for those homes vacated by others who leave, or who downsize, or who transition into assisted living. That also means that new construction competes with existing housing, since relocated homeowners who buy new homes therefore don't buy current ones. All of this explains why low job growth is bad.

But why is it bad? To begin with, we in the Land of Steady Habits tend to believe that everyone wants to live here, and therefore we don't have to make it attractive to do so. We also tend to believe that businesses need to be here. That's true in some cases--like a local real estate firm, or a utility--but is clearly not the case in manufacturing and in more other industries than you would think. So we don't push our lawmakers and state and local officials to do more to attract and retain business. Yes, we want to keep those big defense contracts. But most of the jobs are in small businesses and start-ups. That's where the NIMBY (not in my back yard) folks, the preservationists, the anti-big box protesters, and the knee-jerk city planners and economic development departments lose the race for jobs. Of course, those same people often decry the increases in taxes, but without seeing the connection.

What can you do? Ask your municipality and state officials to be kind to business. Don't jump on the bandwagon to avoid personal tax increases by loading up corporate taxes. Don't let local planning and zoning processes become obstacle courses. Try to think about all sides of the issues. And vote for those who do.

Update from Arizona

It's 37 degrees here in Scottsdale as I write this, so it doesn't seem all that much warmer than at home, but it will get up to 60 by the time I finish my run. My daily path takes me past lots of For Sale signs, and the morning paper gives me news about the real estate market in Arizona.

The good news here is that the number of pre-foreclosures is down from what it used to be last year. That's sort of the silver lining on the cloud, since the total sales went down from 2009 to 2010 in Scottsdale, and the average price declined as well. The experts who were surveyed in the year-end wrap-up in the newspaper expressed a consensus that the big news was their surprise at a lack of improvement in the real estate market. Our driver when we landed said that there are still several thousand bankruptcies a month in the county. Commercial vacancies are sky high, and there are no new buildings planned or under construction.

The surprise at the anemic sales and loss of gains made during the tax credit months is true across the country. None of us expected that the second half of 2010 would be as bad as it turned out to be. The good news, however, for those of us in the snowy Northeast is that we never saw the boom that Arizona did in building. That means that we never got the spike that is now causing the abrupt fall out here. We had steady gains, and some inflated prices, but it was small potatoes compared to sun country.

Even here, there are signs of hope. On my daily running route, I see half as many For Sale signs as I did last year. And it's heartening for me to note that they are almost all local independent companies--another harbinger for us in Connecticut, I hope!