Apartment hunt will be tougher for renters

Renters about to apartment-hunt for the first time in several years: Be prepared.

The apartment market is shifting from one that favored you to one that's increasingly giving landlords the upper hand.

You'll find fewer vacant apartments to choose from. You'll pay more for what you do find.

And as for incentives — those freebies that landlords recently used to lure new tenants? They're gone, just like favorable odds of landing an apartment that includes water and sewer charges in the rent.

Why the big change?

Chalk it up to strong job growth that's attracting newcomers, condominium conversions taking apartments out of the rental pool faster than developers can build, and sky-high house prices that keep renters renting, said Mike Scott of the apartment-analysis firm Dupre+Scott.

Here are some specifics from Dupre+Scott's fall survey of 136,157 King and Snohomish county apartments in complexes with 20 or more units:

• King County's apartment-vacancy rate now stands at 4.2 percent, down from 5.3 percent a year earlier. That's significant because a vacancy rate of 5 percent is considered balanced, Scott said, and anything below that favors landlords.

• Some close-in Seattle neighborhoods are much tighter, with vacancy rates in the 1 to 3 percent range. Popular Ballard's vacancy rate is less than 1 percent — basically a full house.

• King County's average one-bedroom rent is $812. Two-bedroom units average $975. Both are roughly 7 percent more expensive than a year ago.

• Snohomish County's vacancies have tightened even more than King County's. Now 3.9 percent, vacancies ran 5.8 percent a year ago.

• Snohomish County rents are significantly cheaper than King County's. Still, the average one-bedroom is $689 now, compared with $640 a year ago. A two-bedroom is $836, up from $781 last fall.

• Rent incentives in both counties are being offered less than 15 percent of the time. Two years ago, 65 percent of apartment rentals offered them. Particularly common then were weeks or even months of free rent, which effectively gave tenants a handsome rent reduction.

The recession that hit the Northwest in the early years of this decade was deeply felt by property owners, Scott said, and they're now raising rents in an effort to play catch-up.

"In raw terms, rents aren't much higher today than they were in 2000," he said. "Rents relatively were a bargain, especially when you add in the concessions. Few things have gone down in price, but rent was one of them."

Indeed, in April 2002, King County renters paid an average of $869. By April of 2004 that had fallen to $840. (This average reflects all size units, from studios through three-bedroom apartments.)

"Renters need to understand they've saved thousands and thousands on their rent in the past couple of years because the economic environment caused us to drop rents," said Shawn Hoban, president of Coast Real Estate Services, which manages 6,000 apartment units in the Puget Sound region. "It's fair for landlords to increase rents when the economic forces allow them to do that."

The most important economic force is job growth, said Rob Kellum, chief operating officer of Suhrco Residential Properties.

"If job growth increases, apartment demand almost immediately increases," Kellum said.

Some 66,000 jobs have been added regionally this year, according to the Puget Sound Economic Forecaster, published by Conway Pedersen Economics. This is in addition to 50,000 created last year. The forecasters expect another 45,000 to be added next year.

"We're seeing applicants coming from outside the region, which is somewhat of a shift," Hoban said.

For a number of years, rents remained low because landlords "were trading the same renters in the same market," Hoban said. "We were all competing for the same pool of residents."

Increased demand from new residents comes at a time when apartment numbers are shrinking because they're being converted to condominiums — although the impact of conversions is difficult to gauge, Scott said, because 10 to 20 percent of the newly converted condo units are bought by investors who then rent them out.

"There are a lot of reasons people have been selling their apartments for condos," Scott said.

Perhaps the most important is that, "until recently, the economics for apartment investors was awful," Scott said. "Last year, the net income they got was less than it was in 1998."

Just counting apartments in buildings with 20 or more units, Scott estimates that the tri-county region (King, Snohomish and Pierce counties) lost more than 3,700 units last year and is on target to lose another 6,000 this year. Most are in King and Snohomish counties.

Meantime, apartment developers added 3,700 new apartment units in 2005 and 2006 in King and Snohomish counties combined. Next year, 1,900 are expected to open.

"It's clear that conversions have played a hand in reducing vacancy rates this year," Scott wrote in this month's issue of his company-produced newsletter, "The Apartment Advisor."

The tightening conditions are making it hard for renters like Christine Goeller. A middle-age cat lover disabled by an accident, she says he's having a particularly difficult time finding privately owned subsidized housing.

Still, the dynamics forcing her to look for a new place are common to others in her Lynnwood apartment complex, she said.

"My building was sold last winter, and since January, I've had two $25 increases plus the addition of a water bill of $30 per month," Goeller said. "After next month, there's another $135 increase. That's $215 more in less than a year. On a fixed budget, this just won't fly."

According to Scott's research, pressure on renters isn't going to lessen anytime soon.

More than 70 percent of units in big buildings in King and Snohomish counties are now passing on water and sewer charges to their residents.

Vacancy rates are expected to shrink further through the end of next year. And rents are expected to climb by 4 percent or more by next spring. Landlords told Scott they plan to raise rents that much.

Elizabeth Rhodes: erhodes@seattletimes.com