At the State of the City, Mayor Brett Lee announced that “there are very substantial changes on the horizon for vacancy rate rental housing.” For years, the city did not approve any new apartment complexes. “The city should have something around 3000 beds coming on line within the next couple of years.”
He said right now the vacancy rate is around one-half of one percent while the hope is to get it closer to three to four percent. “This low vacancy rate creates some issues,” he said. At the same time, he said the campus “will be providing 5000 beds in the next couple of years.”
While that is the good news – and the mayor and city manager took time to show a drone video of construction at West Village, none of that housing is available right now. And while on the surface it looks like the vacancy rate is up, drilling down into the report, that may be more an artifact of the report than anything else.
Bottom line: real change is going to have to wait for those West Village and Sterling units to come on line, and then more units to be built on campus and in the city.
In 2019, “a total of 122 apartment complexes and property management companies responded to the survey. These properties include a total of 9,007 rental units.” The report was performed by BAE Urban Economics on behalf of UC Davis Student Housing and Dining Services.
The survey looks separately at bed leases versus unit leases, although 7207 of the units were rented by the unit, accounting for 85 percent of all reported market-rate rental units.
Per the survey respondents, “there were 40 vacant apartments available for lease on a unit-lease basis during the survey period. This translates to a vacancy rate of 0.6 percent. This is 0.2 percentage points higher than was reported in the 2018 survey.”
Moreover, the survey noted, “Broken down by unit type, the 2019 survey results show that the vacancy rate was the highest among the one-bedroom and two-bedroom units, which had vacancy rates of 1.0 percent and 0.5 percent, respectively.”
However, “The comparatively high vacancy rate among one-bedroom units is driven by vacancies at a small number of properties that have recently undergone renovations, where units were not available until after the fall lease-up period.”
They found that 1266 of the units were rented under bed-lease arrangements.
The survey found that there were 141 vacant beds which equals a vacancy rate of 3.4 percent. BAE writes that this “represents a significant increase from 0.7 percent and 28 vacant beds in 2018.”
The seemingly good news comes with a considerable caveat: “The increase in the vacancy rate is largely due to vacancies at a small number of properties, where units were not available until after the typical fall lease-up period.”
With the diverging lease types, BAE now combines the unit and bed lease to generate a combined or “blended” vacancy estimate.
This year they estimate a blended vacancy rate of 1.0 percent for all units, up from 0.4 and 0.5 percent the previous two years.
There would seem to be two pretty important questions here to look at.
First, is the vacancy rate actually improving? The answer is that it is probably marginally improving, but the real answer is that at this point it doesn’t really matter. What will matter is what happens when the new units start hitting the market. If we can get to 3 to 5 percent vacancy, then it will make a difference.
A second point is whether bed leases produce higher vacancy. Here again, we cannot be that confident in the estimates. Although last year when the data seemed more complete, the difference between unit and bed release vacancy rates was 0.4 for units and 0.7 for bed leases. That is what we would expect – we would not expect a lot of vacant units, but having beds available to lease would be advantageous.
Given that for whatever reason lease by the bed has been controversial among town folk but popular among students, we can see a considerable advantage for bed leases in a tight rental market where you would not expect to find a lot of vacant units off cycle, but may well find available beds.
Taking a look at the rental rates, BAE reports: “Most respondents reported static or increasing rents, relative to 2018.”
They do note: “Five of the respondent complexes reported lowering rents in 2019 in order to fill vacancies. This is a slight increase from 2018, when only four complexes reported reducing rents. Generally, complexes lowered rents by only two percent or less. One complex indicated a reduction in the rent on only one unit, while another reduced rents but is now charging an additional offsetting ‘utility coverage’ fee.”
Overall, rents continue to rise. An average one bedroom is $1430 while an average two bedroom is $1893.
Meanwhile, bed leases are going up as well. They write that “the weighted average rental rate for a bed lease, in units of all sizes, was $1,003 per month. This represents an increase of 5.1 percent over 2018, when the average monthly bed lease rate was $954.”
They calculate the blended rental rate. For a one bedroom that is $1455 and for two it is $1929.
BAE notes, “Across all unit types, the average rental rate is $2,117. This represents a 5.5 percent increase over 2018.”
Basically the average one bedroom went up in rent by about $63 per month and the average two bedroom went up by about $108 – those are for unit leases. Overall it was a 4.7 increase over 2018 but 2018 had an 8.5 increase over 2017.
The good news is that number decreased. The bad news is that, even with an improved vacancy rate, we were still seeing a newly 5 percent increase and the worst news is over two years the rental rate went up over 13 percent.
Bottom line, relief is not coming until the units are coming on line. And those folks who are suing Nishi and who sued Lincoln40 did the student renters absolutely no favors and probably will end up costing them considerably over the next two rental cycles.
—David M. Greenwald reporting