Developers delivered more apartments than tenants claimed in the second quarter, contributing to a slight rise in metro Denver’s apartment vacancy rate. But that added supply wasn’t enough to prevent rent inflation from accelerating, according to a quarterly update from the University of Denver and the Apartment Association of Metro Denver.
Average apartment rents in metro Denver rose by $93.75 to nearly $1,860 in the second quarter from the first and are up 12.6% for the year. The rate of quarterly appreciation rose to 5.3% from a 3.3% pace in the first quarter.
“The second quarter is typically the strongest quarter for rent growth,” Ron Throupe, an associate professor of real estate at the University of Denver Daniels College of Business and author of the report, said in a release. “This period is when most moves are made by families and individuals. This leads to a seasonal demand scenario and a positive rent effect of early summer with renters looking to migrate to the metro area or relocate from within.”
Builders added 4,006 new units during the second quarter, which brought the total inventory to 388,263 apartments. About 2,227 units were “absorbed,” which contributed to a slight rise in the vacancy rate from 4.3% in the first quarter to 4.76% in the second. A year ago, the vacancy rate was at a historic low of 3.7%, and it hasn’t risen enough to keep rent gains in check.
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“The consistency of the vacancy rate being at or below 6% for 18 quarters in a row illustrates a clear need for more housing development,” said Mark Williams, executive vice president of the AAMD, in a release. “Demand pressures continue to strain the market, so developing more apartments continues to be the priority.”
A lot of supply is in the pipeline, according to a separate report from Apartment Appraisers and Insights. More than 50 new apartment communities are under construction representing more than 40,000 new apartments, most of which are expected to come online before the end of 2024. But labor shortages and supply-chain issues could result in only about 25,000 units becoming available in that time frame.
Another 320 projects are either proposed or in the planning stages, and they are expected to deliver another 70,000 apartments after that, although an economic downturn could delay or alter those plans.
Throupe said a record 19,353 apartments were absorbed in metro Denver last year. Given how much growth the region has experienced in the past seven years, there is always a concern that new supply might outstrip demand. But so far, it isn’t happening. Migration, job gains, and the limited number of homes for sales have continued to support apartment demand.
The AAMD has continued to argue that the only sustainable answer to rising housing costs is to create more supply. And for that to happen, construction activity needs to increase.
Housing advocates recommend that rents should not exceed 30% of a household’s income. With an average rent of $1,860 a month, that would require an annual household income of $74,400, which is close to the median income in Denver County.