Chart of the Day: Twin Cities Rental Vacancy versus Average Rents

Via the Star Tribune’s Editorial page, here’s a chart from the Met Council’s latest report on housing trends. It shows the average rents charted against the ever-tightening rental vacancy rate:

Tc Rental Vacancy V Rents

Here are the key points from the report about this chart:

  • The region’s rental vacancy rate has been under 5% since the fourth quarter of 2014. The rental vacancy rate remained below “healthy” levels despite the addition of nearly 25,000 rental units region-wide between 2015 and 2017.7
  • Average asking rents rise with inflation when the rental vacancy rate is close to or above 5%. After several con- secutive years of low rental vacancy, average rents began to rise much faster than inflation (three times faster, in fact). Had the cost of rental housing rose with inflation since 2010, the average asking rent would be $155 less per month, on average.

The full report has more info about rising rents in the Twin Cities, and how they tie to low rates of new housing construction. As the Star Tribune points out in their editorial this week, “the number of households is up 7.4 percent, compared with 5.4 percent growth in the supply of housing units. As a result, the region’s housing rental vacancy rate last year hit a record low in the modern era, 4 percent.”

The report makes more thought-provoking claims about housing policy in the Twin Cities market, including that we are at a critical point right now balancing trends with general affordability.

And at its conclusion, the report also makes the argument that market-rate construction will not be enough to meaningfully change the Twin Cities affordability picture.

The authors write:

More units alone will not ease the region’s growing housing affordability issues. The largest unmet demand within the region’s housing market is for housing that is affordable to low- and moderate-income households. In 2006, the Council estimated the region would need an additional 52,000 units of affordable housing to meet the existing demand between 2011 and 2020.8 With the decade quickly coming to a close, the region is woefully behind, adding just over 7,000 units as of 2016 (gains that are likely offset by losses of unsubsidized affordable units). In other words, increasing production will only take the region so far. Pairing increased housing production with intentional strategies to prioritize equitable development that meets the region’s most pressing demands is most likely to support the region’s livability in the coming decades.

The report seems to suggest a “both/and” approach to the affordable housing problem, both boosting rates of new construction while coming up with policies that might help people struggling with stagnant wages at the lower end of the income spectrum.

What might those policies look like?

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5 Responses to Chart of the Day: Twin Cities Rental Vacancy versus Average Rents

  1. Matt Henseler August 24, 2018 at 10:01 pm #

    That’s a big gap in what’s been built and what’s needed. I’d be curious to know where those 7000 units were located, and how the location of affordable units corresponds to the need for said units.
    Almost 30% of the growth in population was in Minneapolis and St. Paul alone, yet I’m sure it’s very expensive/difficult to build those units there (hence the talk of mandates, etc.). It seems like there would be cheaper opportunities to build such units in the “suburban edge” areas like Lakeville, where there has still been a lot of population growth and presumably demand for them. I suppose you then get into issues of transit, jobs, and access.

    I guess this is a rambling way of wondering: is there the greatest need/demand for these affordable units in the actual boundaries (or close to) of Minneapolis/St. Paul? Or is it actually spread throughout the (somewhat sprawling) metro area?

  2. Patrick Flanagan August 27, 2018 at 11:38 am #

    Strongtowns had a similar chart that graphed metro vacancy rate with year-over-year rent *changes*. A graph of rent percentage changes is, in my opinion, easier to parse visually because even significant changes (> 5%) in absolute prices get squashed to just a few pixels. That chart is here is about 1/3 of the way down this article: https://www.strongtowns.org/journal/2018/7/25/why-are-developers-only-building-luxury-housing

    I think it would also be revealing to take the data from that chart and do a scatter plot of rent percentage change against vacancy rate. I’m sure that you’d see a strong anti-correlation.

    • Bill Lindeke
      Bill Lindeke August 27, 2018 at 12:02 pm #

      Yeah that was a great article.

  3. Bruce Brunner
    Bruce Brunner August 31, 2018 at 9:39 pm #

    I’m wondering why those opposing expanding the ability to build more 2-4 unit multifamily rentals don’t seem to know about the low vacancy and shortage of housing?

    • Monte Castleman August 31, 2018 at 10:37 pm #

      Knowing that there’s a low vacancy and shortage of housing doesn’t translate into being OK with your single family house being surrounded by 4-plexes (or 6 story apartment towers in certain areas) on all sides.

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