Development

Rent isn’t going down in Charlotte this year, experts say

Construction continues on the Mint Museum apartment tower in uptown Charlotte Thursday, April 14, 2016.
Construction continues on the Mint Museum apartment tower in uptown Charlotte Thursday, April 14, 2016. tsumlin@charlotteobserver.com

With the vast new supply of apartments hitting the market in Charlotte this year, it might seem logical that rents will come down in response.

But that’s not what people watching the market are predicting: Two experts at the Greater Charlotte Apartment Association’s annual forecast on Thursday said they expect rent growth to slow but keep heading up in 2017.

“Rent has been increasing pretty aggressively for the past several years,” said Skylar Olsen, senior economist at Zillow. “2015 was when rents were growing the fastest across the country... It’s slowed down significantly.”

Nationwide, rents shot up at an annualized rate over 6 percent in 2015, when new household formation picked up and more people looked to move into apartments. Last year, however, rent growth was only 1.5 percent on average nationwide.

For Charlotte, Olsen predicted the rate of rent growth this year would be 2.7 percent. That’s ahead of the national average, but behind some peer cities such as Nashville, where rents are expected to shoot up 4.2 percent in 2017.

Erin Amon, market analyst with CoStar, said most of Charlotte’s new apartment supply will continue to be built in uptown, South End and South Charlotte.

“Almost everything being built is high-end units,” said Amon. In Charlotte, just 14 percent of apartment units are what CoStar rates as 1- or 2-star apartments, which have fewer amenities and may be older or in worse condition or older, but are likely to be more affordable.

That compares to 41.5 percent of apartments nationwide ranking in the 1- or 2-star tier nationwide, Amon said. Charlotte’s low share of such units is largely a function of the relative newness of much of the city’s apartments, as well as companies buying and then demolishing or renovating older apartment communities.

“A lot of investors are coming in and doing “value add” deals,” said Amon. “Basically we’re just getting rid of them (older units).”

All of that is contributing to Charlotte’s problem with affordability. Olsen said renters in the lower third of Charlotte’s income distribution pay 47 percent of their income to rent, while for those in the upper third, it’s about 13 percent.

As Olsen quipped: “There’s not an affordability problem if you have the income to afford it.”

Ely Portillo: 704-358-5041, @ESPortillo

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