In the Star today there was an article that average rent prices have come down for apartments to 2003 levels. At the same time city officials are worried as there are not enough new units around.
Wouldn't the free market dicate that low prices equal low supply? And that for supply to increase, price needs to increase? So, is the city going to provide subsidies for developers? Or allow prices to increase, therefore providing an incentive to build more?
Maybe we should ask what would Reagan do?
Apartment rents fall, as does supply
Three-bedroom units buck trend
By Teresa Rochester, trochester@VenturaCountyStar.com
December 17, 2005
The average rent for one- and two-bedroom apartments in Simi Valley fell below 2003 levels this year, according to a city-conducted survey.
At the same time, the vacancy rate in the city dropped to 1.83 percent, the survey found.
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"It's a strange phenomenon," Senior Planner Shannon Nash said. "I suspect the vacancy rate dropped because the rents dropped."
For a while, several apartment complexes were offering move-in specials for one- and two-bedroom units to lure residents turned off by the previously high rents, which skyrocketed as the market got tighter.
As of Nov. 1, 2005, the average rent for a one-bedroom, one-bath apartment was $1,039, or 11.7 percent less than last year's average rent of $1,176. The prices are expected to level out in coming months.
Despite the good news for those hunting for one- and two-bedroom apartments, the price of three-bedroom units increased.
The biggest increase was seen among three-bedroom, three-bath apartments. They jumped by 11.5 percent over 2004 rents. The average rent this year was $1,450 a month, while last year the same apartments rented for an average $1,300 a month.
Shari Rosen, the executive director of the Apartment Association of the San Fernando Valley/Ventura County, said the continued price growth for three-bedroom units was not surprising.
"I can understand that," Rosen said, "especially with the housing market the way it is. It's way out of sight for most people."
Families priced out of the housing market would hunt for three-bedroom apartments, putting them at a premium, Rosen said.
Simi Valley officials send the survey to each apartment complex in the city, and 97 percent of the surveys were returned.
Of the 3,585 units represented in the survey that were not earmarked for senior citizens or occupied by owners, 589 of them were considered affordable.
One of the purposes of the survey is to see if the city is hitting its target for affordable housing and rental housing.
"We can tell that by the vacancy rate we still don't have enough," said Rob Bruce, the city's deputy director of housing and special projects. "It will probably take us a few more years to make a difference."
Councilman Steve Sojka, who serves on Simi Valley's Affordable Housing Committee, which reviewed the report this week, said the numbers serve as a cautionary tale in light of recent requests by several owners to convert their apartment units into condominiums.
And new apartment projects, such as the 500 luxury units under construction behind the Simi Valley Town Center, are a drop in the bucket.
"It's telling me even with the new apartments coming on line, it's still in crisis mode, with the demand outweighing the supply," Sojka said. "We have to pull teeth to get apartment buildings in this town."
Without seeing the study, I can tell you that this survey probably does not take into account the dynamic interplay between the housing and rental market.
Because of the run-up in equity, owners are now buying second and third homes and renting them. Renters are now seeing that they can rent a single family residence instead of an apartment and are jumping at the chance.
This means one thing. Personal income of renters is increasing enough for them to afford the month to month on a single family residence, but not enough to afford the down payment requirements to purchase a home without purchasing an interest only adjustable rate loan. These are called Negative amortization loans and are pretty close to being called predatory by state and federal standards.
Brian: Since you asked what would Reagan do, let me try and give you some background. In 1986 Reagan signed the 1986 tax reform act creating new benefits for homeownership such interest deductions. It also deleted an individuals ability to write-off interest on credit cards. Reagan saw the value of homeownership and used the interest deduction to incentivize the country toward ownership.
Owners of single family residences now can deduct interest on their home thanks to Reagan. I think the next step is to change the federal tax code to benefit individuals that rent single family residences and create even more homeownership.
The downpayment assistance program and the 1st time homebuyer programs are great, but very difficult to meet all the "means" testing and bureaucratic criteria to achieve homeownership.
I think a better approach would be to follow Reagan's model and amend the internal revenue code to give significant tax deductions to owners of rental single family residences that successfully transition their renters to homeownership.
This would create a new market that government-sponsored enterprises like Fannie Mae and Freddie Mac would just jump at.
In 1997, Clinton signed a taxpayer relief act that changed the capital gains tax structure to reduce exposure on homeowners who sold their single family residence. I think another reform would be to allow for the transition of ownership from owner to renter that negates any exposure to capital gains taxes for the owner as well.
I believe this could be accomplished by expanding coverage under the Internal Revenue Code Section 1031 (a)(1), which allows "like" properties to be exchanged without capital gains mark-up. I think putting this "renter to owner transition" clause under this provision in the Revenue code would be a first step in creating more owners in the single family residence renter's market.
I also believe changing the Internal revenue code would be a way more effective tool than any sort of down-payment assistance program or 1st time homebuyer program.
I'm affraid you missed the point of the article, Jon. Monthly APARTMENT rental rates have decreased while supply has decreased. Nothing to do with single family home rentals. Although I do understand your argument(s).
To me this article demonstrates a need for additional apartment units in the City. It's only a matter of time until the existing aparement owners raise rates.
The 500 apartments that will be built near the Town Center will help, but its not enough in the long run. The City missed an opportunity to build about 400 aparments at LA Ave and Madera, and instead caved to nimby pressure and asked the developer for a home owner plan.
But the real issue here is what is the City doing to plan for more rental units in the City. There are very few, if any, undeveloped parcels that are earmarked for apartments. If anything, this underscores the need for the City to review its General Plan as it approaches build out.
Alan:
The city passed the affordable housing element of the general plan in 2004 with flying colors from the state, so I'm not sure you can make the argument for more apartment on vacancy rate alone.
I haven't read the survey, but were single family residences that are being offered as rentals included in the survey? If not, it explains why prices have stuck instead of being increased while vacancy rate has remained low.
How do we encourage builders to build more units when the city has a goal of raising vacancies and lowering rents?
Jon: You make a good point, but I believe the survey is only among apartment owners. It would be far too cumbersome for the City to survey owners of rental homes. Therefore, and to your point, the data is inconclusive.
How do you know so much about the City, Jon?
Stephen:
Is that the city's goal?
I would assume so. The rents are low, but I don't see any quotes about how great that is for the city.
I also see the vacancies are low. Doesn't it make sense that these two things go together? Why do you the laws of supply and demand so much?
If it is a great idea to build apartments, won't developers do that because of the profit motive?
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