By DON FENLEY
James Phillips was busy putting the finishing touches on his new apartments last Thursday afternoon. It was hot and humid. He and his crew were powering through the job because new renters were ready to move in. The four two-bedroom – 10 one-bedroom complex at 610 Arch St. had been leased out three months earlier. That’s the way the Tri-Cities apartment market rolls these days. While the new and existing home sales are slowing, the apartment and rental markets are in pedal-to-the-medal mode.
The lack of rental inventory – and rapidly increasing rents – is a hot-button topic across the region. For some everyday people, securing a place to live has turned into a grueling and expensive task. Some think landlord has become a four-letter word.
Earlier last week, the Bristol Herald Courier interviewed Promise Landing tenants shocked that their new landlord was raising the $900 a month rent for a one-bedroom apartment to $1,050. Rent for a two-bedroom unit was bumped from $1,050 to $1,150. The apartments were the latest acquisitions by the ValCap Group – a Dallas-based investment company.
ValCap is no stranger to the local rental community. It owns the Landings on Silver Lake in Church Hill, Allendale Falls, Bradley Hills, Cross Creek, and Brandy Mill apartments in Kingsport. Tenants at Brandy Mill, Autumn Falls, and Bradley Hills have complained to city officials and media about sharp rent increases.
Herald Courier reporter Calvin Shomaker quoted Richard Fishman, ValCap’s president, saying that he sympathizes with residents who can’t afford the new rents. Then he added he was doing what any landlord does – charge market rates. Fishman added Abingdon Promise Landings residents “have been paying very low rents for a very long time, and they know it.”
Fishman says his firm’s rent increases are not heartless. It’s what the area economy supports. He and other investors nationwide are betting that constrained supply and rent growth will make apartments one of the best sectors in the entire economy. During a discussion on LinkedIn, Fishman was asked when rent increases would ease. “When demand decreases,” he replied.
ValCap bought land next to Bradly Hills on University Blvd. in Kingsport for new apartments. It has also bought land a plans for a larger complex in Bristol. Fishman told CoreData that he thinks the Bristol Casino and new Amazon facility will encourage more growth in the Tri-Cities.
ValCap isn’t the only investor expanding local holdings. It’s happening in Johnson City. Another estimated 1,000 units are coming to Kingsport, Bristol has seen a several new developments, and more are planned. And local investors like Philips are building smaller complexes in and around the Tri-Cities.
Shane Abraham, who many look to as a dean of the Tri-Cities multi-family economy, is a little less bullish than Fishman. Abraham is the founder and president of Universal Developments and Construction (UDC). “The local multi-family rental market is still tight with limited availability.” Wait lists are common in most communities and the newer properties. “We (UDC) are continuing to develop but are doing so cautiously and selective as to the markets we’re looking at. The local region has started to catch the attention of outside developers and investors. Historically rents were too cheap here to promote new development by large outside firms.” But those conditions have changed since the pandemic.
WJHL’s Jeff Keeling recently quoted Abraham saying the multi-family boom isn’t likely to run out of steam just yet. “We feel like there’s still momentum.” He also thinks conditions will stabilize. His longer-term outlook is based on the region’s traditionally slow to moderate job growth.
UDC and Mitch Cox have broadened the multi-family presence to the Bristol area to complement their existing properties in Johnson City, Piney Flats, and Kingsport.
Philips has dual roles. He’s a successful small businessperson and an elected city official focused on what’s happening to everyday people – especially those who are working-class individuals – struggling with higher rents. The $800 rent for his new one-bedroom apartments illustrates that concern. That’s anywhere from $200 to $400 a month below what some major apartments and older complexes are charging. His two-bedroom units went for $1,200 a month.
A letter to the editor the same week Philips’ new tenants were moving in complained their rent in another apartment community was increasing from $935 to $1,429 a month. It is similar to the complaints from other renters written to various media and social media venues.
Similar complaints have come from locals who think new residents moving to the Tri-Cities from other states has driven home prices so high they can’t compete. There some’s truth to the complaints, but it’s not all the story. New residents are driving the population increases, but the growth rate is muted by the region’s death rate and the number of Tri-Cities residents who leave the region every year.
Still, the influx of new residents and organic pent-up demand caused by a decade of lagging new home construction has pushed local home prices to all-time highs. That pushed many locals out of the market and into the rental market where rents are increasing just a fast – some faster – than home prices. At the core of the issue is wage increases have not kept pace with housing costs.
The bottom line is there’s lot more demand for housing than supply. Economics 101 says that means higher prices until the supply/demand situation stabilizes. Local builders and the region’s only national builder – DR Horton – have stepped up construction to meet demand. But it’s a slow process, and inflation has dampened the new home inventory growth rate.
What worries Phillips is the region’s lack of wage growth in the mid and lower-income ranges has made housing unaffordable for the young workers and families the city hopes to attract to balance its rapidly aging demographic.
Data from Harvard’s Economy Tracker in its Opportunity Insights project show that as of June, Sullivan Co.’s employment has increased 15.4% since the pandemic. Of that, 62.8% of the job growth was in the $73,000 and up wage range. Kingsport also has a wealth index that’s 31% below the national level.
The baseline for how much an individual or family should spend on housing is 30% of their income. Applying that to Kingsport means half of the individuals or families with the typical household income should be paying $1,055 – or less – a month for housing. That includes taxes and maintenance. The most current Attom Data Solutions housing affordability reports show the average mortgage payment for a Sullivan Co. median-priced home is $995 a month. Attom data also shows there are a little over 62,000 single-family and townhome, non-owner occupied investment properties in the Tri-Cities. All but 16% of those properties are locally owned. Many of those landlords have a different investment model than the multifamily investors and charge less than the multifamily sector.
Census data show that 47.1% of Kingsport renters and 25% of homeowners with a mortgage are paying more than 30% for rent. That puts them in a “housing stressed” status. And that data was for 2020. It also suppresses the amount of money spent on local products and services. And it’s a disincentive to attracting new workers for the most plentiful and in-demand jobs. In June, a little over 70% of the local vacant jobs listed on the Jobs4TN website were for workers in the jobs that offer less pay and benefits. It’s one of the symptoms of the city’s long-standing underemployment status and a service sector job creation for low-wage workers.
The pressing concern for Philips is the workers who make too much to be eligible for Section 8 or subsidized housing but not enough to pay the rent surge.
It’s a challenge that will take on increasing attention and efforts at solutions in the emerging post-pandemic economy.