Rents will cool off when supply exceeds demand

4-minute, 22-seconds read

Political scribes have proclaimed that President Biden’s next inflation threat is “The rent is too damn high.” It’s safe to say many Tri-Cities apartment residents agree. Some are not agreeing quietly. At the same time, bullish investors are adding new inventory.

The headline was a response to October’s inflation data. Renters’ housing costs were up 0.4% in the formula used to calculate that data. But most renter couldn’t care less about arcane CPI math that only a politician or economist could love. What they care about is closer to their bank account. Some are seeing a double-digit rent increase. And it’s not just a local issue.

Actually, the Tri-Cities rent spike began just after the first of the year. It didn’t get much media attention. Ten months later, the reality of the broad implications of the local housing shortage is beginning to get more public notice.  That situation for the multifamily universe is the same as it is for existing and new home markets. There’s more demand than supply. Economics 101 says when that happens, prices go up.


The surge of new residents that began during the pandemic is one factor. So are organic new household formations. Some of the Millennials and elder GenZers who have been living with relatives or roommates are moving into their own places. This is especially true of those in the income range of $60,000 and up. Their employment levels have increased while those in the lower-income ranges are still under the thumb of economic recovery that has yet to trickle down. Those with less debt have and continue to be first-time homeowners. Others are attracted to Class A apartment homes. Those with less income and more debt are looking in the Class B and C communities.

That adds up to more demand. Demand that has exceeded the new multifamily developments that were added a couple of years ago.


These comparisons are from Zumper’s data on the change in rents for the listings on its site. They are not necessarily reflective of all changes in the local markets, but searches on other listing sites rendered similar results. The November comparisons are dynamic and change with new listings added or removed from the Zumper inventory on a daily basis.

Investors are bullish on the Tri-Cities multifamily market. Several are in some stage of adding new apartment communities throughout the Tri-Cities. But developments don’t come online overnight.

Richard Fishman, the founder of the ValCap Group, LLC, Dallas, is in the bullish camp. The firm’s local holding includes the Landings on Silver Lake in Church Hill, Allandale  Falls, Cross Creek and Brandy Mills, and Bradly Hills in Kingsport. In an interview with CoreData, he said the firm has also bought land in Bristol for new development and is looking in Abingdon and other communities for opportunities. The initial investment of the Kingsport group was 10 years ago. For a while, there were essentially no rent increases, he said.  Now, “our rents are extremely low” when compared to other areas.

Fishman thinks now is the beginning of local growth and opportunities. He said that the area is a good place to retire, and it’s relatively cheap to live. The Wall Street Journal/Realtor.com Emerging Housing Markets Index agrees. The Tri-Cities’ two metro areas are ranked in the top 50 U.S. emerging housing markets. He believes the addition of the Bristol casino and Amazon will stimulate other firms to move here. ValCap has nearly 8,000 apartment units in 23 complexes in Texas, Tennessee, Indiana, Pennsylvania, Ohio, Mississippi, and South Carolina.

Shane Abraham, president and founder of Universal Development and Construction (ADC), Johnson City, is more cautious than bullish. He says the area multifamily market is “tight,” and there’s not a lot of available in the A and B-class communities. Vacancies are minimal, he said. “There is quite a number of new projects slated to hit Washington and Sullivan counties. It will be the big unknown as to the strength and staying power of the population growth vs. all the new supply headed our way.

“I am hoping that the supply spigot doesn’t remain open too long and the market becomes over-saturated. I would not be as concerned if our region had major employment gains year after year. But we know that has not traditionally been the case, so without a lot of new jobs, it’s hard for me to be bullish with an overabundance of new supply become absorbed in a short period of time.” ADC’s website lists 26 area apartments and three condominium developments.


A quick comparison of the region’s 2020 v. 2010 population shows the only Northeast Tenn. growth was Washington, Greene, and Sullivan counties. The area’s growth rate was 2.1%. In Southwest Va. Norton posted the only positive number. The growth rate for those 12 counties was -8.4%.

A back-of-the-envelope calculation of the net population situation for the Tri-Cities Metropolitan Statistical Area (MSA) is it has to attract a little over four new residents a day to maintain the 2022 population status quo. The net population calculation includes the number of new residents, deaths v. live births, and the number of people who move away every year.


Fishman’s response in an online discussion was, “When supply exceeds demand…of course.”

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