Editor’s note: This three-part series explores what’s happening in the rental market, how the industry is connecting with online consumers and what technology is helping them stay in touch.

Editor’s note: This three-part series explores what’s happening in the rental market, how the industry is connecting with online consumers and what technology is helping them stay in touch. (See Part 2 and Part 3.)

As the housing market cools down in many areas, rental housing is heating up, with rents rising and the amount of available rental housing dropping, experts say.

“Demand is increasing for apartments because people say house prices are too high, and with interest rates going up, the affordability of home buying is less achievable,” said Rachel Drew, a research analyst with the Joint Center for Housing Studies at Harvard University.

“This increases the demand for rentals,” Drew said. “Because rental production has been low and replacement of existing units is not good, the supply is not expanding. So higher demand raises the price rather than increasing the supply.”

The analyst emphasized that individual markets will have different levels of supply and demand. “This is a national perspective,” she said. “Individual markets are unique.”

Currently, Drew said, the rental market hasn’t reached the “hot” mark, but it is rising.

A 2006 report by the Harvard center bears out Drew’s comments, saying that the stock of rental units nationwide is in decline. The nation is losing approximately 200,000 rental units each year because of demolition, according to the center.

The Low-Income Housing Tax Credit program and other programs supply about 100,000 new units of affordable rental housing each year, the center also reported, but that is not enough to compensate for the overall decline.

The supply of rental housing in the country has fallen, with an estimated 2.3 million rental units, or 6 percent of the overall inventory, demolished or otherwise permanently eliminated, the report said.

According to the study, after a 10-year slide starting in 1986, gross rents moved up steadily from $611 in 1996 to $711 in 2004.

Rental rates have moved up in Southern California, according to Delores Conway, director of the Casden Real Estate Economics Forecast.

“Monthly rents have definitely moved up, especially in Los Angeles County, but also in Orange County,” Conway said.

Rent increases of 6 percent to 7 percent are forecast in Los Angeles, where the average monthly rent at the end of last year was $1,416, according to a report the center released March 30.

Orange County renters also can expect a rent hike of 6 percent to 7 percent beyond the average monthly rent of $1,390. Inland Empire rents, which averaged $1,012 per month at the end of 2005, should rise about 5 percent this year.

There are two reasons rents have gone up so much in Southern California, Conway said, one of which is interest rates.

“First of all, now that the housing market is cooling and interest rates are moving up, more people are choosing to live in apartments,” Conway said.

“Demand for apartments has gone up as the adjustable mortgage rates everyone was using to try to qualify for mortgage loans are going up. Now lenders are tightening qualifying criteria as well and adjustable-rate mortgages are moving up. They are almost up with fixed-rate loans,” the director said.

Hence, there is more demand for apartments now, Conway said.

“The second thing is more interesting. Because the housing market has been white-hot and there have been so many condo conversions, the supply of apartments actually went down and the demand went up,” Conway said. “So what we’re seeing is tight occupancy, over 97 percent,” she said.

This means there is only a 3 percent vacancy rate in Southern California, compared to the nationwide vacancy rate, which is 5 percent to 6 percent, according to Conway. “Anything less than 5 percent is considered full occupancy.”

Southern California isn’t the only area of the country experiencing the phenomenon of rising rents. Reports from ALN Systems, a provider of multi-family property data and research,conclude that over the last year, the average rental rate rose in each of ALN’s metro areas.

Rents went up at least 4 percent in Florida cities, including Pensacola, Tallahassee and West Palm Beach; Phoenix; Houston; and Austin, the data provider reported. And, of the 17 metro areas tracked by ALN, only one area has an occupancy level below 90 percent.

“It’s not an instantaneous reaction, but we are seeing rents either increasing in metro areas or they are decreasing more slowly than they have in the past,” said Drew. “The market is improving.”

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Send tips or a Letter to the Editor to janis@inman.com or call (510) 658-9252, ext. 140.

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