In the third quarter in the past few years, apartment rents in Denver have risen by and average of $67, this year rates are only up by $27. This slow down of rent increases is due to the fact that more and more apartment buildings are going up in the Denver Metro area. More supply equals more competition, and as a result, landlords are having to lower their rates in order to stay competitive with the new buildings. Especially now when there are more apartment vacancies daily.
This is a very classical example of supply and demand in its simplest form. My question is, if rates are starting to slow, why are vacancies rising?
Link: http://www.denverpost.com/business/ci_29042930/denver-apartment-rents-slow-increase-influx-new-inventory
6 comments:
Vacancies could be rising for a few reasons: people buying property, instead of renting, or moving out of the area, into cheaper areas. I wonder if some of the vacancies are in older apartment buildings, because if there's an influx of newer, more luxe buildings, people would want to live there rather than older buildings. Also, by having slower rent increases, that could attract a younger population, because it would be more affordable to live there.
Denver and Colorado in general has become a new destination for people to move out west. I think this is due to several things, the biggest being full marijuana legalization for recreational use. While rent growth has slowed this year, over the past year using your numbers rent has gone up around 20%. This number is crazy when compared to the rest of the country. Colorado has also seen growth in tourism and in other cities in their state. While they have been affected positively from the marijuana boom, it will be interesting to see if this growth is sustainable as more states legalize marijuana.
In regards to what both Emily and Nate said, I too believe that a changing, younger population has been moving into the Denver area especially due to the marijuana legalization. Further, this select group of people may be targeted towards a certain type of housing, such as newer apartments. This could also be plausible because if the supply of housing is increasing, young people may be more geared to chic, new, and modern apartment buildings rather than the standing, older buildings. Older people in the area who may have occupied the older buildings may be leaving the area to retire somewhere else. These two factors combined may yield the results of the new vacancies in certain buildings.
I agree with all of the comments above and in particular Nate's. I think that due to the legalization of marijuana for recreational use in Colorado, the younger population has chosen to move to the state to benefit from this change in law. Currently, there are only 4 states who have legalized the recreational use of marijuana in the United States: Colorado, Washington, Oregon, and Alaska.
I also agree with Emily's comment that the younger population would be more inclined to rent newer, more modern apartments rather than older apartments. I also agree that the aging population of Colorado could be causing vacancies even with the influx of new apartments. In an article I read, it said that "over the next 15 years, the number of people 60 or older in Colorado is expected to more than double..." (http://www.denverpost.com/news/ci_27184346/colorado-aging-population-will-need-increased-services-age). I think this is a major contributor.
Overall, I am anxiously awaiting to see what occurs in Colorado over the next couple of months as states across the country vote down the legalization of recreational marijuana. Colorado still remains one of the few and it looks as though, the younger population will have to continue their jaunt to Colorado to recreationally use marijuana - something that I believe will help to fill the vacancies in the new apartments.
I think a lot of why the apartments are not being rented out even though prices have been decreasing can be attributed to the low interest rates we have had since the last recession. Due to this, people do not have an incentive to save but rather to spend and take out loans due to the low interest rates. Because of this, it is likely that people are more likely to take out a mortgage loan than they are to pay a monthly payment for an apartment in order to capitalize on low interest rates. I think once the interest rates are increased you will see more people renting apartments and the supply and demand of these will fix itself through market forces.
I agree with Ashley with how people are not incentivized to be saving but yet spending their money because of the low interest rates. Colorado has seen a huge change in their state culture because of the marijuana legalization, and because of this it appears as if a growing demographic is now a byproduct of this. Seeing as Colorado is a more sought after destination for vacation and permanent residence because of the marijuana laws, I believe that these building will soon become occupied as the industry grows and matures.
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