Friday, February 26, 2016

Colorado Springs apartment vacancies remain near 14-year lows

During the third quarter of 2015, the average multifamily vacancy rate in Colorado Springs dipped to 4.2 percent, which was the lowest vacancy rate recorded since 2001.

During the fourth quarter of 2015, the vacancy rose slightly to 5.0, but remained down from the fourth quarter of 2014, which had a vacancy rate of  5.3 percent:

Clearly, the overall trend has been downward since 2004. In fact, the vacancy rate even went down in the midst of the 2008-2009 financial crisis. This was unusual because vacancy rates typically increase when unemployment increases. However, in Colorado Springs, the declining vacancy may have reflected a flight from homeownership to rental apartments in the wake of high foreclosure rates. 

In order to check for seasonal factors, we can also separate out the quarters to see how 2015's fourth quarter compares to other fourth quarters. As expected, it turns  out that 2015's fourth quarter was the lowest vacancy rate found in any fourth quarter over the past decade: 

Rich Laden reports in the Colorado Springs Gazette:

Several factors are driving rent increases, industry experts have said. Even as historically low mortgage rates make homebuying attractive, many people want to live in apartments. In particular, mobile-minded young people - so-called millennials - don't want to be tied to a mortgage and are driving demand, experts have said. Empty nesters who are downsizing and want maintenance-free living also are a part of the mix of renters. At the same time, the construction of Springs-area apartments isn't necessarily keeping pace. From 2012 through 2015, nearly 2,800 units were built and added to the overall supply of apartments for rent, the Housing Division and Apartment Association report showed. And yet, an additional 3,366 apartments were rented and occupied during that four-year span.What's more, apartment construction during the recession years was minimal; only 778 new units were added in the Colorado Springs area from 2007 through 2011.

For more on this, see our previous articles here at "Colorado Springs permits hit four-year low" and "Colorado Springs: New housing construction not keeping up with household creation."

Colorado Springs: New housing construction not keeping up with household creation

With new apartment vacancy data coming out for Colorado Springs, it may be helpful to take a look at household formation versus new unit construction in the Colorado Springs area.

For now, we only have data up through mid 2014, but we can get a sense of the overall trend.

(These numbers are from the Colorado Demography Office and are based on population and household data. The total household number is based on occupied housing unit data, and the housing unit data originates with the US Commerce Dept., and includes both single-family and multifamily.)

In 2014, new household formation and new housing units were fairly even matched.We can see that both increased by about 1.25 percent. Specifically, housing units increased by 1.2 percent while households increased by 1.3 percent (for Colorado Springs):

Not all years are as evenly, matched, though. We can see back in 2010 there was a lot more household growth than there was new unit construction. Back in 2003, there was a lot more housing construction than there was new household growth.

Not surprisingly this reflect what we might have suspected all along — namely that during the housing boom, housing construction was outpacing new household formation, while it has been the opposite since the financial crisis.

To look at this a different way, let's look at the difference between the total number of new units and the total number of new households.

In this graph, for example, we see that in 2014, there were 94 more households formed than there were new units constructed. By contrast, in 2003, there were 6498 fewer households formed than there were new housing units.

Since 2008, this points toward a tight housing market, and will likely mean low vacancy rates, since we know from this that only a small portion of new units have been multifamily (for Colorado Springs):