The New York Times recently lifted the apartment’s window shades and took a peek inside at the national rental housing market.
Instead of chasing the white-picket-fence part of the American dream, said the Times, younger singles and couples are flocking to apartment complexes with swimming pools, media rooms and party venues, where they gather with like-minded types to watch football, ingest beer and wings, dance, laugh, surf the web and even go bowling, without ever leaving the site.
How’s that playing out in Louisville, a market without a great rental tradition? “In many ways similar, but different in other ways,” says Gant Hill, president and principal broker of Gant Hill & Associates.
The similarity, notes Hill, is the increased rental rate, which we pretty much knew already. In its 2013 “State of Metropolitan Housing” report, the Metropolitan Housing Coalition said, “We have 49,747 more people living in rental housing units in 2012 than in 2005 and a slight drop (4,663 fewer people) in the population living in owned housing units.”
Many of the reasons are familiar, too. Young people, having lived through one housing bust, are cautious about undergoing another. The recession cost jobs and hindered many people’s ability to afford a house. Tightly regulated lending has put a squeeze on mortgages. An investment in a home is no longer the slam dunk of buying an appreciating asset.
“That generation of folks has seen people really get hurt by homeownership,” Joshua Solomon, president of the real estate firm DSF Group in Waltham, Mass., told the Times. “The petal has fallen off the rose. People don’t want to be tied down to a mortgage they can’t get out of quickly.”
And it’s not only the job-challenged, resource-challenged or credit-challenged who are opting to rent. “People under the age of 35 are twice as likely to rent as to own,” said the MHC report. People are older before they purchase a home, and more affluent. MHC says 22 percent of renters have incomes of $50,000 or more a year. “More affluent people are choosing to rent.”
But Louisville is not like some of the other markets noted in The New York Times. While we certainly have plenty of traditional rental complexes — two-, three- and four-story units surrounding a clubhouse and swimming pool — the desire for many young renters is to be closer to downtown, nearer the action of restaurants, bars, jobs, parks and sporting events.
But to that end, we lack a supply of high-end luxury apartment buildings to meet that demand, even in the fast-growing Central Business District (CBD) and surrounding urban neighborhoods like NuLu, Butchertown and the Highlands. Nor are these properties being built.
“We’re in a bit of a standoff right now,” Phil Scherer, president of Commercial Kentucky, told Insider Louisville a couple of months ago. “There’s not a lot of available land, and what is available is very expensive. And the closer to the CBD, the more expensive the land becomes. The more expensive the land, the greater the density you have to develop — 100 rental units instead of 30. And the greater the density, the greater the risk. How long will it take you to rent 100 units?”
So where are the rental opportunities for people seeking something other than an apartment complex out around the Gene Snyder? For young families who want a more traditional house-and-a-plot-of-land lifestyle near good schools as well as good bars and restaurants?
“We’re in the process of acquiring and developing single-family residences (SFRs) and turning them into rentals,” says Gant Hill, who owns or manages some 200 rental units around the city.
For one thing, they’re already built, so nobody’s looking for available land in the right part of town and waiting for a banker’s check to begin construction.
And for the renter, it’s a nice, roomy, livable space. Hill says he’s had a lot of a success with the graduate student market, a more stable group of renters who’ve graduated and been out in the working world, meaning they’re better able to afford more and used to living on their own.
“They’re more likely to respect the property,” he says of the law students, nursing students and medical students who are primarily interested in studying, just trying to get through their graduate program. Also, he says, they’re more willing to sign longer-term leases.
But location is important. “We try to be on the fringes of the strong residential areas, like St. Matthews, Crescent Hill and the Highlands,” Hill says.
In St. Matthews, Hill’s desired location is along Westport Road, from Hubbards Lane out to Goose Creek Road. “That’s a solid rental market,” he says. “The schools are good, the shopping’s good, it’s near the Watterson, and the houses are all of an era that can be bought for a reasonable amount. They were built mostly in the 1960s and ’70s, a ranch or center hall colonial with a large kitchen. There aren’t enough of those out there anymore.”
Then, Hill says, there’s Crescent Hill and, in particular, Clifton, which is close to downtown and full of interesting restaurants on either side of Frankfort Avenue.
And near the Highlands, Hill says, “Germantown is really hot right now, near downtown and with a lot of older, interesting architecture, especially all the shotguns and camelbacks.”
Properties like these aren’t necessarily inexpensive as rentals go. Hill says a three-bedroom, two-and-a-half-bathroom house on Keswick Boulevard in Germantown rents for $1,000 a month; a Crescent Hill house off Frankfort Avenue goes for $1,500; a three-bedroom ranch off Billtown Road in J-town rents for $1,000.
“J-town is an up-and-coming area for rentals,” Hill says. “The homes are a little larger, room to stretch out in for young families, and near good schools.”
And at Terraces of Indian Hills, apparently over the infrastructure problems that plagued it a few years ago, a $300,000 condo unit rents for $2,300 a month.
Not that Hill doesn’t have some urban high-rise properties, too. At Bycks Lofts on South Fourth Street and Muhammad Ali, a one-bedroom condominium rents for about $1,300 a month. “These have a real New York-style loft feel, with brick walls, high ceilings and wood floors,” he says. “That’s what the young urban renter wants, something unique, with character.”
But, he says, there’s not an enormous quantity of these kinds of properties. There’s never been enough of a market for higher-end urban apartment buildings, even though demand is outpacing supply right now.
What we do have here are a lot of single-family residences and condominums that are available for rent because of foreclosures, difficulty in selling, overbuilding or just because, as Hill says, investors are realizing it’s a smart play to buy them and rent them out.
For example, he says, that Bycks Loft condominium cost $200,000 to buy. The $2,300 Indian Hills condo cost $300,000. The $1,500 SFR off Frankfort Avenue is worth $230,000 on the current market. Do the arithmetic. It’s a pretty good return.
“If the property is one that will likely appreciate, monthly rental income helps the owner push the cost back or just cover the mortgage,” he says. “If someone pays $125 a square foot for a property that he can end up selling for $200 a square foot down the road, renting can be the bridge that gets him from here to there.”