With so many people finding themselves without down payments for new homes and others finding themselves stuck in their existing homes it should come as no surprise that Chicago’s rental market is hot right now. Crain’s ran a story a couple of days ago on the resurgance of Chicago’s rental market. In this article they point out a couple of interesting facts:
- The effective rents at high-end downtown apartments increased by 6% to $2.29 per square foot per month if the first quarter of this year vs. last year.
- 5800 downtown apartments have been added to the supply in the last 3 years.
But here is what I don’t understand. As a nation we over-invested in housing during the last decade and in theory we have more homes than we need. Sure, more people want to rent now but, as I’ve been pointing out lately, more people need to rent out their existing homes since they can’t afford to sell them (they are seriously underwater) and they need to move on with their lives. So the supply of rentals is also up. Just because people are shifting from one type of housing to another doesn’t mean that we need to build more housing units. We just need to repurpose existing housing units.
So if you ask me we are just on the verge of another bubble and eventually the housing glut will be even worse. I don’t see how rents can continue to rise in this environment.