Chicago-area apartment rents rise again, trend not slowing down
BY DAVID ROEDER Business Reporter firstname.lastname@example.org August 17, 2011 6:08PM
A rental building at 161 W. Kinzie in Chicago. Few new apartments are being built in the Chicago region, except for downtown. | Richard A. Chapman~Sun-Times
Updated: November 16, 2011 1:31AM
Apartment renters in Chicago and the suburbs can’t catch a break. New market studies show that a two-year trend of rent increases will continue through the fall and could escalate into next year.
Rentals remain caught in the backdraft of for-sale housing. Industry watchers said foreclosures, falling home values and tighter standards for mortgage loans have forced prospective homebuyers to rent instead, causing vacancies to decline.
Meanwhile, few new apartments are being built in the region except for downtown Chicago. Many suburbs frown on rental buildings and use their zoning powers to ensure that multi-family buildings are condominiums.
Throughout the Chicago area, effective rents should rise 2.9 percent this year after an increase of 2.2 percent in 2010, said a report by the real estate brokerage Marcus & Millichap that’s current through the second quarter.
The report also found that in city neighborhoods that are popular apartment markets, rent increases should be higher, about 3.4 percent this year vs. 2.5 percent in 2010. The figures are for effective rents, which means after any landlord concessions — and studies show those are dwindling anyway.
The fundamentals have caused more investors to acquire apartment complexes, and “these people are betting on a future [in which] they’ll be able to increase rents,” said Greg LaBerge, regional manager in Chicago for Marcus & Millichap. “There are fairly aggressive prices being put on these assets.”
Separate mid-year reports from Appraisal Research Counselors paint a similar picture. The firm said suburban apartments charge on average 5.2 percent more than a year ago and that the pattern should continue.
The downtown market is in a class by itself. Appraisal Research said units in newer or “luxury” high-rises are commanding rents that are about 10 percent higher than a year ago. “Additional rent increases are expected through the remainder of the summer with spikes occurring in early 2012,” its report said.
Landlords enjoy the leverage even though a spate of construction, often condo buildings that got converted to rentals, has added 5,595 units to the downtown inventory in the last three years, a 36 percent increase, according to Appraisal Research.
Some outlying city neighborhoods and suburbs could see apartment demand weaken, said Stuart Handler, chief executive of TLC Management Co., which owns about 2,400 units mostly near the lakefront.
The hottest rental markets — Lincoln Park, the Gold Coast, some suburbs — tend to be transitional areas that draw people who will eventually own a house or a condo, he said. Handler said demand could slacken in areas dominated by long-term renters and that cheaper homes could start drawing buyers.
“As rents go up, the cost of home ownership gets more attractive,” he said.
But in some neighborhoods, foreclosures are reducing the number of apartments. John Bartlett, executive director of the Metropolitan Tenants Organization, said banks board up one-to-four unit buildings and evict the blameless residents. Those smaller buildings provide half of the city’s rental housing, he said.
A rent-vs.-buy analysis of major cities by the online listings provider Trulia, using data from July, showed that in Chicago it made slightly more financial sense to own a home than to rent one. Most other cities showed up in the study with stronger “buy now” numbers.
Tenants have little recourse when landlords impose a rent hike, Bartlett said. Building owners must provide 30-day notice of any increase, even on leases that are month-to-month, he said.
Bartlett said it’s always a good idea to negotiate rent hikes, especially for a tenant who hasn’t caused trouble and has been timely with payments.