Rising rents may prod affluent US city dwellers to buy homes

US apartment vacancies declined and rents rose again in the fourth quarter, continuing a years-long trend that is likely to encourage more affluent renters to become home buyers this year, according to real-estate research firm Reis Inc.

The national apartment vacancy rate dropped to 4.5 per cent in the last three months of 2012 from 4.7 per cent in the previous period, marking three straight years of vacancy declines, according to Reis data released on Tuesday.

It was the lowest vacancy rate since the third quarter of 2001, according to Reis data.

As demand for new rentals outpaced new construction, the average asking rent of $1,097 and the average effective rent of $1,048 were both up 0.6 per cent from the prior period, Reis said.

It was a smaller increase than in the third quarter, but marked the twelfth straight quarter of rising rent.

"The market has tightened considerably over the last few years and at this point in the cycle a slight slowing should be anticipated," said Ryan Severino, senior economist at Reis.

However, he called the 45,162 units that were leased during the quarter "a strong showing," because the rental market has already been tightening for such a long period, and because the fourth quarter is typically a slow period for new rentals.

In theory, the more expensive it becomes to rent, the more likely residents are to save money and purchase a home instead -particularly since mortgage rates are near historic lows and prices are still down in many markets.

But several factors have counteracted a potential surge in US homeownership, including stricter lending standards by banks,

weakness in the labor market and a broad deleveraging of US consumers following the subprime mortgage crisis.

As a result, Reis expects rent to march even higher in 2013, with fewer vacancies, even as a substantial amount of newly constructed apartment buildings come onto the market.

Yet the firm does expect to see more affluent consumers in expensive markets take the plunge into buying a home this year, after facing sharp rent hikes for the past few years.

"You're starting to see the initial signs of rent versus own calculus that takes place," said Severino.

"You're starting to see it in New York and San Francisco, where people are paying $3,000, $4,000, $5,000, a month to rent.

"They look at it and say, 'All right, I'm already dealing with 8 per cent, 10 per cent rent increases from year to year, how much longer do I really want to put up with this from landlords?"

New York continued to be the tightest rental market in the US last quarter, with a 2.1 per cent vacancy rate, which was flat compared with the third quarter.

It also had the highest effective rent, of $2,985, on average, down 0.2 per cent from the previous period.

Jacksonville, Florida, posted the biggest decline in vacancy rate from the previous quarter, dropping 0.7 percentage points.

Houston residents experienced the highest rent increases, up 1.3 per cent to $787.

Only nine of the 79 metro areas tracked by Reis posted an increase in vacancies, while just four markets reported a decline in rent.

The trends have helped landlords such as Equity Residential, Post Properties Inc, UDR Inc and AvalonBay Communities Inc, which have large concentrations of high-end apartment buildings in urban areas.