Are Boston Area Rents Going Up Or Down?

Two recent stories available on-line contradict each other on which direction the Boston Rental Market is going. One by the Boston Globe says rents are up over the last year, by 4.8 percent. This seems to jibe with the anecdotes we're hearing from a lot of owners and renters.

Please chime in and let us know what your rent is doing--down, up, staying the same? What do you think about Boston area rents? Too high? Are you going to high tail it out to the suburbs as soon as you get the chance?

Boston Area Rents go...UP? How's that work?

This story in the Boston Globe may not be news to many Apartment hunters out there pounding the pavement looking for affordable housing.

Rents in the Boston area spiked 4.2 percent over the past year, the biggest increase in seven years, while rising foreclosures and a slumping housing market pushed more people into apartment living.

Average monthly rent in the metropolitan area increased to $1,659 in the third quarter, from $1,592 a year earlier, according to a report from Reis Inc., a New York research firm that tracks rents for apartments in buildings with at least 40 units. Boston's increase exceeded the national rise of 3.5 percent, Reis said.

So rents are up everywhere, not just Boston, though Boston is a little worse than average. Why? How is it possible that as people have less money, and as home owners default on mortgages, creating more vacant housing, that the cost of rent goes...up? What about the laws of supply and demand?

Why does this stuff always happen to renters? Why? Why?

I could paraphrase the Globe, but why not just tell you the answer in their own measured, sober words.

Rents are up because families who are losing their homes in foreclosures are driving up demand for apartments, housing analysts said. As demand rises, it becomes easier for landlords to raise the rent.

Rapidly falling house prices also have put buying on hold for many potential homeowners, who are staying put in their apartments as they wait to see how low prices will go.

OK, that makes sense. The real problem with the housing market is that people are stubborn. It's not like the prices of other commodities, where people shrug and take their lumps and prices go up and down and markets stay liquid. Homeowners cling to their fantasies of their home's value. They remember the peak, and they reason, they only need one buyer. So they hold out.

Rents rise because everyone holds out for the better deal. Homeowners try to wait out the slump. Home buyers try to wait out the home owners. Banks try to wait out the Homebuyers.

And renters foot some of that bill.

We at RBA hope that folks can come to grips with the new realities of the housing market as quickly as possible so we can all move on, and rents can stop rising.

Boston Area rents are down? Says who?

This article provided by BusinessWeek has Boston tenth on the list of cities with falling rents. Here's the quote:

• Rank: 10th most 'rent damaged' city


• Rent drop: -2.8%


• Q4 2008 rent change: -2.4%


• Q4 2007 rent change: 0.5%


• Effective rent: $1,634.20

The Boston area, home of Harvard University, MIT, and Boston University as well as some of the nation's finest hospitals, is seeing damage to its financial sector. Thousands of financial-services layoffs have been announced, including major cuts at Boston-based State Street and Fidelity investments. The unemployment rate climbed to 5.0% in November 2008 compared to 3.6% in November 2007. The apartment vacancy rate jumped to 6.0% in the fourth quarter last year from 4.7% in the same period in 2007. Landlords on average are giving 1.3 weeks of rent concessions.

As you'll recall, or can read by scrolling down, yesterday we commented on a Globe story showing that rents were up 4.2 percent. Um. Yeah. As my friends used say in High School, "I HATE THIS! SOMEONE IS LYING!"

There are various theories as to what is really going on here. I'll list them in no particular order (and yet, I'm going to number them. Go figure.)

1. The Goldman Hypothesis: Nobody knows anything (Goldman said this about Hollywood. I'm generalizing it to Real Estate.)


2. Rents at the top of the food chain, luxury rents and rents for larger units, are falling as people trade downwards due to economic hard times. This survey is skewed towards this type of unit.


3. The universe is intrinsically unknowable. Everything is Roshomon.

Theories 1 and 3 are essentially the same, created so I could use a numbered list. So let's home in on number two. Who did the survey that Business Week quotes?

Axiometrics. Who are they? A data services provider to the REIT market? What is a REIT? Ah, now we get to it...a REIT is a Real Estate Investment Trust. From Wikipedia:

A Real Estate Investment Trust or REIT (pronounced /ˈriːt/) is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90% of their income, which may be taxable in the hands of the investors. The REIT structure was designed to provide a similar structure for investment in real estate asmutual funds provide for investment in stocks.

So! The same geniuses who brought us the sub-prime fiasco—the free-market pioneers on Wall-Street who are currently slurping up public money so fast they've put Regan's mythical welfare queens to shame—also figured out a way to collateralize apartments!

As Kurtz put it, "The horror! The horror!"

We'll keep digging into it. What is interesting to me is that Axiometrics wants its investors to think that rents are going down. Why? Well, if you had to explain to a Board of Directors how you lost a zillion dollars in rental real estate, with rents going up in the Boston area, the Axiometrics data would be a comfort, wouldn't it? That Globe article sure wouldn't win you any friends!

The one thing I'm sure of? Nobody in a REIT was investing in affordable housing. Let's do a search on that.

Yeah, I'm right.

I knew they weren't going to be throwing any roses at us in Iraq, too. I'm kinda psychic, I guess.