You Can’t Find a Cheap Apartment Because They’re Building So Few

(Bloomberg) -- Property investors have poured no small amount of money and concrete into U.S. rental apartments recently, concentrating on upscale projects in urban cores. The result is a glut of units affordable to affluent renters and far less supply for everyone else.

The vacancy rate for the most expensive 10th of U.S. apartments topped 13 percent in the first quarter, according to a study by CoStar Group Inc. For the rest, the figure was about 6 percent. There were 537,000 apartments under construction -- the most since at least 2000 -- and they’re disproportionately located in the most expensive submarkets, the study shows.

All of that is good news if you’re looking for a luxury rental in New York or San Francisco, where landlords have had to offer sweeteners to fill pricey apartments. It’s bad news for renters competing for cheaper places, because tight supply makes it easier to raise rents.

For builders, the mismatch between new high-end supply and existing demand may represent a missed chance to cater to a larger pool of potential customers.

“Capital around the world is enamored with U.S. multifamily, and a lot of that is manifesting itself in high-amenity, high-asking-rent” apartments, said Michael Cohen, director of advisory services at CoStar. “The market is missing some other opportunities.”

CoStar’s research excluded subsidized rentals and was restricted to the 54 largest U.S. metropolitan areas. It includes new rental units that have never been leased.

©2018 Bloomberg L.P.

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