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The Big Squeeze - Brief Article

Kiplinger's Personal Finance Magazine, July, 2001 by Elizabeth Razzi

APARTMENTS | Tight supply and punishing RENT HIKES demand that you stay on your toes.

IF THE first three rent hikes on Karen Schiff's New York City apartment weren't bad enough--$75 a month the first year, then $200, then $400--the landlord's request for another $200 a month, starting in April 200 l, put Schiff over the edge. It wasn't just that the rent she and her roommate would shoulder was going up to $2,800 for a 640-square-foot apartment. This time, she was insulted. "We found out that they were asking us for more rent than a new tenant. They thought we were too lazy to move," says Schiff, a 28-year-old assistant in an investment company.

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Lazy she is not. With three months to go before the lease was up, Schiff started looking for a place of her own. A broker (a necessity in Manhattan's rental market) helped her find one within a few weeks. But her detailed application to rent a $1,700-a-month, 450-square-foot efficiency was misplaced, and it took months before the landlord's co-op board approved it. During that time, more than $4,500 in security deposits and application fees were tied up, and she felt that her broker had done little or nothing to speed things along.

With only 12 days left before she had to vacate her old apartment, Schiff could finally move into her new one. In a last move of defiance, she refused to pay the broker's full fee of $3,500. "No way!" says Schiff. "I told them they were worth about two grand. It was a horrible experience."

New York state of mind. Bulldog coop boards and pricey apartment brokers may be a Big Apple specialty, but renters across the country have been feeling a touch of New York over the past two years. Rents have been going up by more than 10% annually in tech-driven boom towns such as San Francisco, San Jose, San Diego, Boston and parts of Washington, D.C. "No vacancy" signs are a sign of the times.

Even in saner markets, rents have been increasing at a much faster rate than overall inflation, which was 3.4% in 2000. Nationwide, rents increased by 8.5% in 2000, according to Reis Inc., a New York--based real estate analysis company.

Landlords can raise rents aggressively when apartments are fully booked. The vacancy rate was less than 2% in some markets that saw double-digit rent increases. That's far below the 6% vacancy rate that indicates a market in which supply and demand are well balanced, according to Robert Sheehan, economist for the National Apartment Association. Nationwide, vacancies now average only 3.2%.

But a drop-off in the growth of the number of people looking for apartments and new apartment construction will combine to loosen up the supply of rentals, predicts Reis's president, Lloyd Lynford. "Rent increases are going to slow," he says. The nationwide average rent increase is likely to fall back to 5.4% this year.

The smallest rent hikes will occur in areas that have had a lot of construction, such as Atlanta, Phoenix, Tampa and Charlotte, N.C. But renters will still face price hikes in the high single digits in areas that have not been overbuilt--and that haven't been hurt by declines in employment. Painfully above-average increases are likely in Sacramento, San Diego and San Bernardino County, Cal., and Fairfield County, Conn.

Hope for the future. Yet even in one of the nation's hottest rental markets, San Diego, there are signs that rent increases may be slowing down. The vacancy rate remains a negligible 2%, according to the San Diego County Apartment Association. But the most expensive apartments are starting to lose their appeal. With rents on units with two master bedrooms running between $1,800 and $2,000 per month, many renters are deciding to become homeowners instead. So landlords are offering one-month-free deals on such luxury apartments. It's too soon to tell whether weaker demand will extend to the most-sought-after units: two-bedroom garden apartments that rent for $900 to $1,000.

How to cope. Even if you're not planning to move, it pays to keep an eye on what your landlord is charging new tenants. If newcomers are being lured with discounts, you'll have a better chance at negotiating a lower rent increase when you renew your lease.

Check out the apartment-rental digests that are distributed free in most communities. That's where you'll find discount coupons aimed at new renters. You can move to a building that's offering a better deal, or at least increase your negotiating leverage when you renew your lease.

On the Internet, some of the most popular apartment-searching sites are Homestore.com, Apartmentguide.com and Apartments.com. Each allows you to search major apartment complexes for the right-size unit at the right price where you want it.

Finally, you may find that rents are so expensive that you're better off buying a condo or co-op apartment--or a house--of your own. You can work through the numbers using the rent-or-buy calculator at Kiplinger .com. Click on the "Tools" tab and scroll down to "Am I better off renting?" --Reporter: JOSEPHINE ROSSI

Financial Services Industry

The Big Squeeze - Brief Article

Kiplinger's Personal Finance Magazine, July, 2001 by Elizabeth Razzi

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