Posted on Tuesday, December 21, 2010
Rents in the Washington area have soared to the highest level measured in at least 20 years as an array of economic and psychological forces thrust people into the rental market after the housing sector tanked in the last half of the decade.
In this region, rental prices surged 22 percent in 2009 from a decade earlier, according to the latest inflation-adjusted Census figures. Rates jumped in part because 10,000 single-family houses that were occupied by their owners two years ago are now rental properties. Those houses tend to be larger and have higher rents than apartments.
People hunting for rentals are brushing up against bidding wars between potential tenants, resulting in rents topping $4,000 for modest homes in some of the area's most coveted neighborhoods. Those from more distressed areas who have come here chasing jobs find waiting lists, more stringent credit checks and rents triple what they left behind.
In local apartment buildings, rents jumped 8.2 percent -- about twice the long-term average -- to $1,643 this year as vacancies disappeared, according to a study to be released next week by Delta Associates, a Alexandria-based research firm. The area's vacancy rates are the second-lowest in the nation, after New York City.
"There's been a structural shift from owners to renters in this country in the past few years," said Gregory H. Leisch, chief executive of Delta Associates. "It's the most rapid shift I've ever witnessed in the 40 years that I've been in this business."
While the high foreclosure rate helped push more people into rentals nationwide, that factor was less influential in the Washington region, many economists said. Instead, the local rental market is thriving mostly because the area added jobs more quickly than the rest of the nation during the recession, luring newcomers who were unable or unwilling to purchase a home here.
The number of people in households that rent shot up 8 percent nationally but 12 percent locally between 2007 and 2009, Census Bureau figures show. As demand surged, rents climbed 3 percent nationwide and 5 percent in this region. The area's median rent last year -- $1,190 -- was the third-highest among the country's largest metropolitan areas, trailing San Jose and San Francisco.
Rental market is 'golden'
"The rental market is going to be golden for a few years," said Stephen Fuller, director of George Mason University's Center for Regional Analysis. "It's going to be the first winner. Then some of renters will become homeowners in two to three years."
Nash and Eric Holt, both anesthesiologists, hope to be among them. Before they got married, she owned a house near Boston, where she completed her residency, and he owned a condominium in Florida, where he was to be stationed with the Air Force.
After he got a job in Washington, they looked at upscale apartment buildings in downtown Bethesda but could not stomach paying $3,700 a month for the cramped spaces they were seeing. They turned to single-family homes so they could have more room and avoid paying to store their belongings.
"One day, we looked at four rentals and there were other people looking around in every home we walked into," Nash Holt said. "Many cars were pulling in as we were pulling out, and sometimes there were bidding wars."
The couple finally signed a one-year lease for a spacious Bethesda house with a yard large enough for their dog. Nash Holt said she realizes that the $4,500 they now pay in rent could easily cover a mortgage. But the couple, who hope to have children one day, wanted to learn more about area neighborhoods, traffic patterns and school districts before committing to a home purchase. "I don't want to buy in a rush," she said.
Brian Vent doesn't want to buy at all, at least not in the near term.
Vent. 29, moved to the Virginia suburbs from Texas in June 2009 to look for work after completing a two-year Navy flight program. He's rented two apartments since then and now shares a house in Vienna with roommates.
Though he makes a comfortable salary and could probably qualify for a decent mortgage, Vent said he favors renting because it gives him the flexibility to bolt should the economy sour. He prefers month-to-month leases. "If something were to happen with the economy or my job, I could move again at the snap of a finger," he said. "I see renting as a financially responsible thing to do."
Many Americans expressed similar sentiments in a Fannie Mae survey released last week. More than half of the renters polled cited "financial benefits" as the main reason they rent. About 59 percent of renters said they would rent again the next time they move, up from 54 percent in January. And about 33 percent of respondents, including homeowners, said they are more likely to rent their next home than buy it.
Many renters may not have the luxury of choosing. Fannie estimates that 64 percent of renters who do not plan to own and half of those who do probably do not have enough income to qualify for the mortgage on a median-priced home, said Steve Deggendorf, Fannie Mae's director of strategy.
Others may lack the stellar credit or hefty down payments that many lenders now demand, said Brian Ridgway, president of Executive Housing Consultants, a Bethesda firm that specializes in high-end rentals. And some keep renting because they can't offload the properties they owned before moving to the Washington area, he said. "We saw a lot of that starting two years ago, especially as people were coming in to fill [Obama] administration jobs," Ridgway said.
Some who came to the area simply suffered sticker shock. When Ari Zimmerman was a student at Indiana University, his share of the rent for a "stunning" four-bedroom apartment was $600. After graduation, he followed a Capitol Hill job to the District's U-Street neighborhood, where his share of the rent in a three-bedroom is $1,500.
"It was a wake-up call for me," he said.
With so many people committed to renting, landlords are raising rents and cutting back on concessions, industry experts and real estate agents said.
Joan Caton Cromwell, a real estate agent in Chevy Chase, said she recently witnessed a bidding war over a D.C. condominium. It took several months to rent it out three years ago, she said. This spring, it flew off the market.
"I immediately had three applications, and I could have taken more," Cromwell said. "We got a couple to sign a two-year lease because they wanted it so badly, and they're paying $200 more a month than the last tenant. That is $2,500 without parking, which was included in the rent before."
The rental market for apartments is equally hot. In the D.C. area, there were about 12,500 more apartments occupied through the end of this year than there were a the same time last year, said Grant Montgomery, a vice president at Delta Associates. About 16 percent of the apartment projects surveyed by the group in the third quarter had waiting lists, and many more had only one or two units available.
Developers cut back on apartment projects as the economy soured in 2009, limiting the new units available this year. That drove down vacancies and boosted rents. Rents should keep climbing for the next two years, since new openings will not appear as quickly as they have in the past, Montgomery said.
By Dina ElBoghdady and Dan Keating
Washington Post Staff Writers