Crain's reported today that rents in Class-A properties in Chicago's Loop area have remained steady despite 4,500 new units hitting the market in 2017:
Demand for downtown apartments has been especially robust as job growth has picked up: Downtown Chicago added 19,448 workers in 2017, a 3.4 percent increase, the biggest annual gain in at least five years, according to Integra. That's one reason a key measure of apartment demand, absorption—the change in the number of occupied units—rose to 3,385 units in 2007, a record.
Still, developers threatened to ruin the fun. Even though absorption soared last year, it couldn't keep up with the a 4,500-unit increase in supply last year. Last fall, with the leasing season ending, many buildings offered generous concessions—two months of free rent over a 12-month lease wasn't uncommon—to attract renters.
Yes, but the Tribune says another 7,000 apartments will be built before the end of 2019:
While only about 3,000 apartment units are expected to be completed this year, developers next year could challenge the record number of downtown apartments — 4,350 units — built in 2017, Integra Realty Resources executives said Tuesday during the firm’s annual apartment and condominium forecast luncheon.
The firm projects that about 4,200 units will be completed in 2019.
The rate of downtown apartment construction is being closely watched amid concerns of an oversupply. Yet even amid the frenzied pace of construction, 2017 also brought a record for absorption: 3,385 units, a 31 percent increase from 2016. Absorption measures the change in the number of leased apartments compared with the previous year.
So what's going on? Shouldn't rents change one way or the other? The Atlantic suggests an answer:
Airbnb’s great contribution was to allow travelers to live as locals do—in the busy downtown residential areas, near the best restaurants, bars, and other local hangouts. Business travelers might prefer the amenities of a hotel. But what Airbnb offered was a superior simulacra of the local experience for leisure travelers—for an affordable price, which happened to support some local dwellers’ income.
But Airbnb's success also encouraged dubious behavior on the part of “commercial” power users—property owners who listed downtown units (especially second residences) all year long, as if they were hotel rooms. Why would would that be a problem? Open apartments occupied for much of the year by Airbnb-using travelers reduce the number of available homes to people who want to move into that building. High demand, plus lower supply, leads to higher prices. Several studies—including research from Harvard, MIT, UCLA, USC, and the University of Massachusetts Boston—have come to the same conclusion: Airbnb altogether drives up the price of rent in many neighborhoods.
Increasing supply, not completely accounted for by absorption, should be pushing rents lower in downtown areas. But speculators (i.e., people buying apartments to list on AirBnB) are driving the price up.
As both a landlord and a renter, I'm watching this closely.