More apartments available, but rents remains stubbornly high
John Boyle
The Asheville area's apartment crunch may be easing a bit as more and more units come online, but those area rents remain among the highest in the state.
The CoStar Group, an industry analyst, noted this month the average rent for all apartments in the Asheville region stands at $1,169, meaning the area ranks third in the state for highest apartment rents.
"That's just below the average rents we see in Charlotte and Durham, and it's just above the average rent for Raleigh," said Victoria Lim, a market analyst with CoStar, an Atlanta-based firm that collects data and provides research on multi-family housing, as well as the retail and industrial markets. "So, Asheville rents are pretty high, considering the employment base is lower, and it's centered around the service industry."
The Bowen Report, originally commissioned by the city in 2015 and updated last year, found that since 2014, rent in Asheville has increased by 5.4% annually. That's a jump of $300 for the average renter — if their rent was was $1,000 in 2014, it's now $1,300.
Asheville has had a notoriously tight apartment market, highlighted by the original Bowen Report, which found the Asheville area five years ago had a vacancy rate of less than 1% and needed 5,500 more units. Bowen noted recently the vacancy rate for the region (Buncombe, Henderson, Madison and Transylvania) has improved to 3.2%, as the region has 18,030 rental units and 580 vacancies.
Vacancy rate may be higher?
Apartments.com, which is affiliated with CoStar, created a little stir in Asheville recently on its website, which tracks apartment vacancies. The numbers change daily, but the May 22 stats for Asheville are a pretty good indicator of what the site has been saying: 1,663 apartments available, which the company says translates to a 10.7% vacancy rate for Asheville and 10.3% in the metro area (CoStar analyzed Buncombe, Henderson, Madison and Haywood counties).
"I think that's exaggerated," said Barry Bialik, chair of the city of Asheville's Affordable Housing Advisory Committee. "I think that's in part a little hiccup that's come from the COVID-19 (pandemic), but with real estate so far, in general, I don't see the slowdown."
Bialik owns the Thirsty Monk brewpubs in Asheville and Biltmore Park, but he also has a company that builds workforce-priced homes. While some people may have had to leave apartments because they're out of work and can't afford the rent, Bialik thinks more of what's driving that inflated vacancy rate is short-term rentals.
"One thing I found interesting is Asheville has a tremendous amount of people who rent out homes or apartments as short-term rentals," he said. "I think people who were renting out STRs have had vacancies because of COVID, and they may be looking at, 'Hey, maybe we should look at renting long-term."
A 2018 survey found 3% of Asheville's housing is Airbnb rental stock, the highest rate found in the United States. The financial advice website SmartAsset conducted the survey, looking at 17 major U.S. cities.
Looking closer at the apartments.com site, a filter noted that as of May 22, 673 of those 1,1663 available apartments were listed as "short-term." Taking those out of the picture cuts that vacancy rate nearly in half.
More:Half of Asheville households rent. Some now call to cancel housing payments.
Affordable units are packed
It's also important to note that "affordable units," including those that accept federal housing vouchers, remain essentially full. Public housing has a waiting list for apartments.
"What's always been missing is the less-than-market rate units — the lower-price rentals," Bialik said, noting that the city has used leverage to have developers include "workforce housing" units in new developments, but it hasn't been enough to bring overall rents down. "The question is how do we make sure there are $800 two-bedrooms out there or $600 one-bedrooms, and the reality is that does not happen without subsidies."
The Bowen report offered this assessment: "Interestingly, virtually all affordable rental units that operate under the Low-Income Housing Tax Credit program or under a government subsidy are occupied. Management at most of the 87 affordable housing projects indicated that they maintain wait lists for the next available units."
More 'market-rate' units coming
The Bowen report looked at 179 multi-family rental units in the region, including 92 complexes that offer “market rate” rents on a total of 11,579 units. Of those, 481 were vacant, putting the occupancy rate at 95.9%, meaning the vacancy rate was 4.1%.
Most of what gets built locally are market-rate apartments, with a small percentage of affordable units to satisfy city council requirements. In a nutshell, developers build the units with high demand, and the ones they can get the best return on investment from.
Those market-rate units coming online also can skew the vacancy numbers from outfits like apartments.com
The Bowen report only includes "physical vacancies" and does not include "economic vacancies," which are vacant units not immediately available for rent. That means they're under construction or in the pipeline.
Will Ratchford, vice president of Southwood Realty in Gastonia, a company that has built more apartments in the Asheville area over the last decade than any other firm, knows about that pipeline. After the initial Bowen report stated the region needed 5,500 units to catch up to demand, his company got cracking.
"Over the last 10 years, there's 1,682 units we’ve built, and we have 602 to go," Ratchford said.
The Asheville region has seen 5,032 units constructed or coming online from 2015-2019, according to the Bowen report.
Ratchford said the apartments.com vacancy rate is probably artificially high because of the "economic vacancies." Southwood remains bullish on the Asheville area, with new complexes under way or planned for West Asheville off Leicester Highway, one in Weaverville and another in Waynesville.
While CoStar says Asheville is verging on being "overbuilt," Ratchford says that's not the case.
"I think you can be overbuilt in Asheville proper, maybe," he said. "But outside of Asheville, I still think there's capacity."
Renters can be a little 'more picky'
The Bowen data does suggest newer apartments have been slower to reach a higher occupancy rate. Generally, apartment owners shoot for at least a 90% occupancy rate, and anything over 95 or 96% is considered full, to make allowances for people moving in and out, Ratchford and other developers say.
The Bowen report found that for 1,101 units built in 2018 in the region, the vacancy rate stood at 11.7% earlier this year, while it was 6.8% for 1,911 units that went up in 2017 . In 2015, 1,463 units were built, and that vacancy rate stands at 4.4%.
By contrast, the 7,009 units that went up before 1970-1989 have a combined vacancy rate of .76%. For 6,070 units erected between 1990 and 2014, the vacancy rate averages 3.3%.
Ratchford's company said nearly all of the complexes his company has built over the past 10 years are at the 90% threshold, and rents usually average around $1,000 a month for a one-bedroom and $1,200 or so for two bedrooms.
But he has noticed more recently opened complexes have been a little slower to lease.
"This has changed over the years, but it used to be an apartment building comes open and it was rented 'first come, first served,'" Ratchford said. "Now is the time for your tenants to be picky. They want to be closer to work, to the ball parks, to the greenways. You're just now getting the vacancies in the market where people can have a choice."
Capitalism at work
The occupancy rate data suggests folks in Asheville fill up older, less expensive apartments first. That, and the waiting lists for affordable units, also suggest that some developers might want to built more affordable units.
But Asheville City Councilman Keith Young, who has advocated for more affordable units, said that's unlikely. He wants to get more federal housing vouchers out among lower-wage workers, and he wants to get more landlords to accept them.
Young also thinks the COVID-19 pandemic and economic downturn may make that a reality in the coming months and years. But for now, he's not foreseeing a rush to build affordable units.
Asked why Asheville is such an expensive apartment market, Young was blunt.
"Developers are not in it for charity," Young said. "Why build a bunch of affordable housing and just break even? It’s just capitalism. It's just the nature of the capitalist, economic beast, and the growth Asheville went through coming out of the '08 recession."
In December, Young voted "yes" with four other City Council members to approve a 488-apartment development between Asheland and Coxe avenues, just south of downtown. At the time, Young said the development was "not a great project. It’s a good project."
He supported it because it included plans for 49 affordable apartments reserved for people making no more than 80% of the median income — $37,200 for a single person and $53,100 for a family of four. Also, 10 of the units will go to very low-income residents who qualify for federal housing vouchers.
But Young also made it clear he wants future projects to have even more affordable units.
While Young expects rents to decline some as more units come online and economic pressures force owners to make allowances, he maintains that expensive housing is part of a larger, complex issue in our area.
"We have a unique tourist economy in which we have tons of underemployed people who work in the service industry where they can find a job and supply the industry needs," Young said.
Wages lag
Asheville has always been an expensive place to live, and a market where wages lag behind larger and even comparable cities statewide. The median household income for Buncombe County stands at $48,464, more than $1,500 below the state average of $50,320 and far below the national average of $57,652, according to the Asheville Area Chamber of Commerce.
More:Affordable housing in Asheville: How is it defined and how much is rent?
The Bowen report also noted that nearly half of 19,700 renting households in the city are “cost-burdened," meaning they pay more than 30% of their incomes toward housing. For homeowners, 25% are cost-burdened.
Despite the need for more affordable units, mostly what gets built are market-rate apartments. Demand remains strong for them.
"The pandemic is driving people from the Northeast and the Midwest to the South — they're coming to South Carolina, North Carolina, Florida," said Rusty Pulliam, owner of Pulliam properties, which owns scores of commercial properties in the Asheville region and has been involved in the development of three apartment complexes. "I talk to a lot of people in real estate, and they say their phones are blowing up."
At two of the apartment complexes Pulliam properties helped build, the 280-unit Weirbridge Village in South Asheville and the 180-unit Retreat at Hunt Hill just east of downtown, occupancy has been over 90% for years.
Pulliam is finishing a third complex this summer, Hawthorne at Mills Gap, which comprises 272 units at the corner of Sweeten Creek and Mills Gap roads in Arden. That project is 37% leased, but only one building is finished, with the second building opening up in early July.
Two-bedrooms will go for $1,425-$1,485 a month. At the city's urging, Pulliam included 41 affordable units at Hawthorne, with rents that are $250-$300 lower, on average.
He expects Hawthorne to lease over 90% within a year, despite the economic downturn. Pulliam is also skeptical of a 10% vacancy rate locally, saying the area still has room for more product.
Supply and demand dictates the market, and demand remains strong for market rate apartments, he says. The Asheville region will continue to draw people during the pandemic because they want to get out of larger, more urban areas.
"I really don’t think until Asheville makes it easier for developers to put product on the ground, pricing is never going to come down," Pulliam said. "The Bowen study said Asheville needed 5,500 units to balance the market. But when it's hard to build in the city or the county, you are never going to get to affordable price points."
FACT BOX
Average rent per month, for North Carolina cities, May 2020:
Charlotte: $1,174
Durham: $1,171
Asheville: $1,169
Raleigh: $1,156
Wilmington: $1,101
Burlington: $918
Greensboro: $859
Winston-Salem: $853
Fayetteville: $852
Jacksonville: $830
Source: CoStar Group