The cost of renting an apartment along most of the Wasatch Front rose a little higher during the first six months this year, even though the number of vacancies also increased, according to a mid-year report.
Vacancy rates rose in three of the four Wasatch Front counties, said the report this month from Apartment Realty Advisors, a real estate brokerage firm in Salt Lake City. Vacancies in Salt Lake County increased from 4.5 percent at year-end 2007 to 5.3 percent by mid-year 2008. Utah County vacancies increased from 3.6 percent mid-year 2007 to 4.9 percent mid-year 2008.
Weber County saw a modest jump from 6.3 percent mid-year last year to 7.0 percent for the same period in 2008. The Davis County vacancy rate was virtually flat, the report said.
Jeb Millburn, a spokesman for Apartment Realty Advisors, said part of the reason for the increase in vacancies is the decline in sales in the entry-level homebuyers' market. Builders, speculators and investors who can't find buyers, due to the downturn in the housing market, are renting many new homes and condos.
"You've got homes that normally would have been sold to homeowners that are now being rented," he said. "They term this 'the shadow market,' because it's a market that is very difficult to track, and you really can't pin down how many of those homes there are that are being rented."
The speculators bought the homes with the aim of selling within six months or a year, he said. But they found they couldn't sell the homes, and "they just didn't want to lose money, so they rented the property to cover the mortgage."
Despite the rising vacancies, the average rent in Salt Lake County jumped 9.23 percent, compared with the same period last year, and it was up 3.86 percent during the first six months of 2008, compared with the end of 2007, the report said.
In Davis County, rents increased 3.7 percent for the first half of the year and were up 7.2 percent year over year. Utah County saw just a 1.8 percent increase in rents for the first half of the year, but rents were up 6.9 percent from mid-year 2007.
Weber County rents rose 1.6 percent during the first six months of the year, and 4.3 percent over the past year.
In many cases, the rent for the house or condo wasn't much different than a high-end apartment rental, making it a competitive alternative to a conventional rental unit, Millburn said.
But those rental houses and condo units are making it more difficult for developers of newly constructed multifamily apartments, considered Class A properties, to find occupants, he said.
Class B and C apartments have garnered more demand, as people have tried to counter the effects of the tough economy by choosing less-expensive housing options. The report described Class B units as functional with average decor and amenities that are typically located in fair to excellent market areas, while Class C units are older and less-functional apartments that are often in need of repair or updating, located in less desirable areas.
"The cost of gas and the cost of food are pushing people back into lower-grade apartment units," Millburn said. "Their jobs are still paying the same, it's just that everything else is going up. Housing is one of the ways that you can save money."
The increasing demand for the Class B and C apartments is driving up rent for those properties, but the high-end apartments have not seen similar rent increases, because of the competition from the house and condo rentals, Millburn said."The Class A properties are struggling, and they're seeing no rent growth or very little rent growth, and they're seeing higher vacancy rates," Millburn said. "That's the reason why the overall vacancy rate is up, although the overall rent growth is up, as well."