Although most housing market focus last year was on existing and new home sales the stage was being set for big changes in the rental market – especially in Sullivan County.
Year-end reports from Attom Data Solutions show house flipping was on the rise during 2016. Much of it was done by individuals for resale. Some were for rentals. But there was also an increase in institutional investors. Most of those sales were in Sullivan and Washington counties, and Sullivan had more in last three years than Washington. Attom defines institutional investor sales as residential property sales to non-lending entities that bought at least 10 properties in a calendar year. There were 199 of those purchases in the nine local counties monitored by Attom’s year-end sales report. In 2015 there were 150 investor sales and 224 in 2014.
And then there are there are the apartments. Sullivan County is dramatically increasing the inventory of apartment units – many of them assisted by County approved tax increment financing. Most of that activity is in the Kingsport region where over 1,000 units should come on line this year and next year. And that’s just the large complexes. There has also been an increase in smaller complexes. At the same time, some investors sold their investor properties looked for greener pastures. One owner told me at a Tri-Cities Apartment Association meeting that he didn’t like the looks of a rental market where a substantial increase in supply would tip the advantage in favor of renters.
According to the most current Census data, 30.5% of the housing units in Washington County are rentals. In Sullivan, it’s 29.2%. Combined the two counties had a little over 62,000 rentals. Typically about 20% of those are low-cost or subsidized units.
The icing on this cake is rents on three-bedroom units in Washington County dropped 13.8% in 2016 and increased 0.4% in Sullivan. Attom’s data show the average rent for a 3-bedroom unit in Washington dropped to $917 a month from $1,064 while it increased to $914 from $910 in Sullivan.
A similar picture is painted by the HUD Fair Market Rent (FMR) levels. It declined by double digits in Washington County for everything except 2-bedroom units. In Sullivan, it decreased for everything except 2-bedroom units where it increased in 0.3%.
Although the FMR only effect HUD properties, the ebb-and-flow typically reflects what’s happening in the broader market.
Here’s what those FMR looked like for 2017
1-bedroom – $580
2-bedroom – $729
3-becdroom – $997
Census data also shows that the gross rent as a percentage of income for almost half the renters was 30% or more. That means those renters fit the description of being rent stressed. And, all of this is happening in a region where the mortgage for an individual or family making the median income for a median priced home would be less than the average market rent.
All of the counties in the Tri-Cities have a negative natural population growth. That’s a fancy way of saying that the death rate is higher than the birth rate, so population growth is a matter of attracting new residents. And the competition is heating up.
So, what’s driving all this activity?
Kingsport is pushing higher-end apartments to stem the flow of new residents who land jobs in the Model City to Washington County and to attract Millennials and residents from other neighboring counties. The mayor recently said One Kingsport’s goal is to grow Kingsport’spopulation by 500 people a year. Census data show that Kingsport’s estimated 2015-2014 population gain didn’t make it to three digits while most of the growth went to Johnson City. And, on the county level, Washington was the only one that had population growth in 2015.
Property managers are also seeing a trend of seniors selling their homes and moving into rentals for their retirement.
How all this plays out remains to be seen. Some say the push for more rentals is a smart move that embraces demographics and a growing preference to rent rather than buying. But some property managers – especially those in the larger apartment complexes – a nervous. Most have comfortable occupancy rates for now, but what happens when the extra supply of new units come on line is anybody’s guess.