CHARLOTTE, N.C. -- Yeanna Smith has seen her monthly apartment rent go up $225 in the past two years. Strapped with student debt and working two jobs, she’s having to move farther away from where she works in order to find affordable living.
“There’s nothing in the $600s anymore,” said Smith, 26, who has been paying $840 a month for her apartment in southwest Charlotte. And buying a house isn’t an option this early in her career.
“I’m not really at a point where I’m comfortable, so if I get a job offer in, say, Virginia, and it’s something that’s good for me and what I really want to do, then I’ll leave.”
Higher rent is increasingly becoming the trend, fueled by a weak homebuying market and a limited supply of rental units. The average Charlotte-area apartment rent has risen by about 7 percent in the past year, the biggest 12-month jump in more than a decade, according to a real estate analysis firm.
The average rate was $786 in February, compared with $733 in the same month last year, according to the latest Charlotte Apartment Index from Real Data.
It’s a far cry from the recession, when the apartment market saw a 7 percent drop in rent levels from 2008 to 2009. Back then at least one company was offering 1 1/2 months free rent to tenants who signed at its uptown residential complex by a certain deadline.
Today’s higher rent “is not really beneficial to the renter, who may be having a hard time finding a job right now. But it’s a good thing for the industry,” said Engle Addington, an analyst with Real Data.
Charlotte’s highest average rent is $1,216 in uptown. Immediately south of uptown is also on the pricier end, with an average rent of $1,038. The least expensive area is west Charlotte, at $608.
Not yet at ‘the tipping point’
Addington said rents are rising because supply hasn’t kept up with demand, especially since the recession stalled apartment construction. The tepid housing market has given people less confidence in buying as opposed to renting, she said. Monthly mortgage costs are averaging roughly $1,000, according to Real Data.
“The tipping point is where it’s more affordable in theory to buy a house than it will be to rent an apartment,” she said. “We’re not anywhere near that.”
Other factors in the housing market drive people to rent as well. For those moving to Charlotte who have homes they can’t sell in other markets, renting is a viable option, and for people who can’t qualify for mortgages, it might be the only option.
“The lenders have really tightened up their qualifying standards,” said Ken Szymanski, executive director of the Greater Charlotte Apartment Association.
He said the rent hikes in Charlotte, as well as Raleigh, are slightly above average compared with other metro areas. Although the percentage increases in both cities are nowhere near those in Washington, D.C., or San Francisco, they are higher than those in Atlanta and Greensboro, he said.
More increases to come
Charlotte rents are expected to increase an additional 5 percent in the coming year, Addington said, although the upward movement is mostly a return to normal price levels before the financial crisis.
“This isn’t really rent growth,” she said. “It’s rent recovery.”
The numbers provided by Real Data are not adjusted for inflation, making it difficult to compare recent prices to pre-recession levels.
Cliff Shephard, who co-owns M&S Property Management and North Lake Property Management, said the biggest challenge for his company has been finding people who will pay their rent on time, even though rent has mostly held steady at his properties.
“I know times are tough for a lot of people, so we try to help, letting people pay when they can,” he said.
But now that the economy has started to bounce back somewhat, he said, the company might raise rents to offset some of the costs of not charging more during the downturn.
Szymanski said better economic fundamentals have started to emerge, like increasing demand and job creation. Ups and downs in the market are always tied to economic indicators – jobs, wages, housing and the like – but 2012 has been the “perfect storm” in terms of getting apartment demand to increase significantly, he said.
The Vue high-rise uptown, hoping to capitalize on the growing potential in the market, last week announced it would rent rather then sell its luxury units. The units, which range from 600 to 3,800 square feet, will be priced between $1,250 and $5,000.
Poised to peak?
Although a rise in demand is potentially a sign that people can afford higher rent, Szymanski said that doesn’t necessarily mean everyone is doing better; the apartment market is affected by a broad range of demographics.
“Twentysomethings continue to be probably the biggest driver for apartment demand,” he said.
But many young people, such as Smith, are already facing high costs of living and record high student loan debt. That debt surpassed credit card debt for the first time in 2010.
But the upward trend in rents could flame out. In February, 8,130 units were proposed for construction, as opposed to 524 units that were under construction in February 2011, Szymanski said. Not all proposed units will be built, but the difference is still significant.
New projects include a proposed 281-unit complex under construction by JLB Partners at South Boulevard and Remount Road and the 285-unit Madison Square at Northlake complex being built in north Charlotte by Spectrum Properties.
Fitzhugh Stout, a Charlotte-based analyst with real estate consulting firm Integra Realty Resources, said the boost in rents is good for the industry, but he is “stunned” at the number of proposed projects.
“Right now, the apartment market is hot,” he said. “Rent levels are such that it justifies new construction ... I just am concerned that it will be overbuilt in three years.”
If that happens, the market could be oversaturated, causing rents to drop again and vacancy rates to increase. The vacancy rate improved to 6.7 percent in February from 9 percent in February 2011, according to Real Data. The firm’s analysis indicates demand will outpace supply for the next two years.
Ben Collins, regional director for Charlotte-based development company Crescent Resources, said he feels comfortable with the amount of new projects and believes demand will continue to be high. One of Crescent’s current projects is Circle South Park, a complex of luxury-style apartments expected to open in 2013.
“We have great confidence in our new communities under construction,” he said.