Warning to apartment dwellers: Hold on to your checkbooks. Your landlord will be raising the rent soon — big time.

If your landlord is typical, your rents will be increasing 5.1 percent over the next year, according to MPF Research’s Greg Willett, one of the nation’s top apartment market analysts.

On a national basis, developers have not built enough apartments over the last three or four years to keep up with natural population growth and new household formation, as young people grow up and leave home. Plus, a lot of Americans just can’t buy a house right now.

The result: the national apartment occupancy is going to go up to approximately 95 percent by this time next year, Willett said. That means rents will be coming up also.

“It’s a rising tide,” Willett told the National Association of Real Estate Editors’ conference recently.

The apartment market is hot across the entire nation, with the exception of Las Vegas, Willett said. Texas, one of the few states with positive job growth, is registering strong growth in its apartment occupancy rates and rents.

Across the nation, droves of people are giving up on the American dream of home ownership and electing to live in rented dwellings instead, said Stan Humphries, chief economist of the Zillow real estate company.
Over the next year or so, between 1.2 million and 2.2 million people will be shifting from being homeowners to being renters, Humphries said.

With foreclosures still plaguing the housing market and consumers worrying about more declines coming in home prices, moving into rental housing is an appealing option. In addition, tighter lending standards at mortgage companies have been blocking a lot of consumers from being able to buy a home.

New Players

The strength of the apartment market has attracted a lot of interest from newcomers to the multi-family business, said Stacy Hunt of Greystar Real Estate, which manages 187,000 apartment units around the nation. Major home builders, including Lennar Homes, are getting into the apartment business, said Hunt, former president of the Houston Apartment Association. Earlier this year, the Hines development firm announced it was branching into the apartment industry for the first time since the company was founded in 1957.

The newcomers are staffing up with expertise from the apartment industry and should have little trouble transitioning into multi-family development, Hunt said.

Hunt said he does not expect the apartment construction surge to get out of hand because lenders remain “very cautious” about making loans for new apartment projects. The ability to finance apartment construction could be disrupted by proposed reforms of Freddie Mac and Fannie Mae, which are being discussed in Washington.

Deal Making in Houston

The Allen Harrison Co., which was formed about a year ago, has been buying up apartments in the Houston area. The Houston-based firm recently purchased the 714-unit Villages at Meyerland apartments, the 86-unit Chalfonte in West Houston and the 92-unit Applewood Village community in Spring.

The company has several other acquisitions in the works, including targeted properties in Austin and Dallas, said Will Harper, a partner in the firm.

Harper said his firm is looking to buy apartments that are “distressed” and can be boosted with renovations and careful management. Allen Harrison plans to spend $7,000 to $10,000 per unit in making upgrades to the apartments it buys, he said.

But the fundamentals of the apartment market appear to be very solid for the next few years. Investing in apartments seems like a smart move for now.

Ralph Bivins, former president of the National Association of Real Estate Editors, is founding editor of RealtyNewsReport.com.