US reality sets for revival - Rental demands rise apartment growth

New York: Nearly six years after the US housing bubble burst, the property market is showing signs of a nascent recovery fueled by rental demand that is spurring investment in apartment buildings. For the first time in decades, it is cheaper to buy a house than rent it across much of the US. Home prices are down 35 per cent from their 2006 peak and mortgage rates are at record lows. Even so, residential vacancy rates have dropped, rents are soaring and investors are driving up prices for buildings in many US cities.

For Kate Prockovic, 33, who pays $1,700 for a two-bedroomed property in Chicago's Wicker Park neighbourhood, renting is more of a lifestyle choice than an economic necessity.

"I'm fortunate that even though I'm a teacher, I work in the suburbs and I earn a generous salary, I'm unmarried without kids, I have no debt. I've considered whether it might be wiser to buy but I don't feel that if I rent I'm throwing my money away," she says. Prockovic says many of her peers feel the same way: not ready to commit to a neighbourhood and uninterested in the responsibilities of owning property.

This attitude is a far cry from the buy-at-any-cost ethos towards home ownership that prevailed in the years leading up to the crash.

"The idea that renting was bad has gone away. It's seen as a financially responsible thing to do, especially if you can rent a more upscale unit," said Aaron Galvin, owner of Luxury Living Chicago, an apartment marketer.

Ron DeVries, vice-president of Appraisal Research Counsellors, a consulting firm, agreed. "You might save $5,000 (Dh18,361) a year [on a mortgage] than renting, but you could lose $20,000 (Dh73,447) in equity if the market goes down. You're not throwing money away renting but protecting your bank account by not losing money through a decline in value or paying a broker commission on a sale."

This changing mindset, along with a more mobile job market and the wariness of other would-be homeowners facing high student debt loads, has helped push the national apartment vacancy rate down to 4.9 per cent in the first quarter, the lowest since late 2001, according to Reis, the research group.

Rents have increased 5.4 per cent since the beginning of 2010, with the bulk of the rise driven by class A luxury apartments in larger cities.

In Chicago, rents for top-tier downtown apartments averaged $2,148 a month in the first quarter, up 9.2 per cent from a year ago, according to Appraisal Research Counsellors.

High rental growth in many cities has attracted big institutional investors such as insurance companies, real estate investment trusts and pension funds looking for a steady stream of revenue for the long term. This interest has made banks more comfortable with financing construction of apartment blocks at the expense of other property types.

Financial Times