Soaring rent rates

Moderated by Rick Badie

Today’s renters are paying higher rates to keep a roof over their heads. Renters in metro Atlanta paid an average $77 more in January than a year earlier. A real estate executive analyzes the local rent-supply market and whether increases will continue to climb or stabilize. Elsewhere, an economist explains his firm’s recent analysis of our region’s home loan data, which showed a lag of black and Hispanic home ownership when compared to whites. The third column deals with the region’s economic downturn.

Rent, housing demands spike higher

By Frank K. Norton Jr.

The apartment construction crane is becoming Atlanta’s official “bird.” The drive, perhaps frenzy, for new apartment developments has helped pull the real estate market out of its abyss and is sending ripples across the market in other areas such as retail shopping, office services and condominiums.

A number of factors are driving this tsunami. The surge in millenial and executive population growth to the “inter-perimeter” in 2007-2012 has gone on unabated during the downturn. Atlanta has clearly become the South’s mecca for migration of the young and brightest of the south’s emerging millenial population. Unlike past generations that sought employment first then were transferred by that company to a city, this workforce finds a place to live first, then they find a job.

Atlanta captivates its young work force with a vibrant mix — urban villages, edgy food and entertainment options. It offers quick access to our mountains, lakes, forests and proximity to beaches in three states.A recent U.S. Census estimates Atlanta’s inter-perimeter population to be 787,511, with 32 percent classified as millennials, 18 to 34. It has been well chronicled nationally that this population strata delays home ownership and favors flexibility, mobility and landlord-provided upkeep.

The urban core of metro Atlanta is dominated by rental housing. The 2014 census projects 194,967 occupied rental units (57.17 percent) versus 146,035 (42.82 percent) owner-occupied housing units inside the Perimeter.

Historically, like most communities across the country, sewer availability allowing multi-family units originated within city limits and, over time, radiated outward. Atlanta’s first-generation apartments were smaller complexes, 10 to 40 units in size. In the 60’s, 70’s and 80’s, we saw an influx of larger-scale garden apartment projects. Now the new wave clearly underway is massive in scale and urban in character.

Building inside the perimeter presents a new set of economic challenges and constraints. Land is scarce. Urban markets are hot with office business, technology and housing sometimes competing for the same geography. Current apartment construction also competes with the construction of two sports stadiums, an explosion of pre-leased urban office space and a myriad of government infrastructure for a much smaller building and subcontractor pool.

Core city demand is forcing higher density for new units. Scarcity and land costs are forcing structured parking, both of which drive up hard construction costs and higher rental rates. The 21st-century apartment units are also tricked out with alluring amenities: fitness clubs, rooftop gardens, outdoor spaces, electric charging stations, technology-enhanced activity rooms, security, recycling centers and Wi-Fi access. All add to the monthly rent.

For the traditional real estate industry, the conundrum is that it’s still cheaper to buy a home in Atlanta than to rent. When combining the average home price, current-long term interest rates, potential tax savings and medium household income, Atlanta is one of the most affordable home markets in America.

The inventory of homes, while tight, provides a buyer with a variety of options and new construction is up 19 percent over last year. National builders are all in place in Atlanta now and focused on increasing inventory, but inventory will remain below normal for the rest of the decade.

The home ownership rate has pulled back since its 2007 peak but whether a newcomer buys or rents, 100 percent of the newcomers need a roof over their heads; Opportunity for both products widens every day. Expect Atlanta apartment rental rates to continue their upward march for years to come. The population migration, business growth and Atlanta’s lifestyle are too compelling a story. The inertia of this movement will accelerate.

Rocky ride to home ownership remains

By Stan Humphries

Buying a home is challenging. Even for those with advantages, home ownership is often the result of saving and planning. For those with relatively few advantages, especially lower incomes and fewer employment opportunities, these same challenges can be almost insurmountable.

In Atlanta, it is clear blacks and Hispanics have very few advantages when it comes to house purchases. Those who have achieved home ownership have experienced a rockier ride through the market’s recent ups and downs.

Recently, Zillow analyzed 2013 home loan data obtained through the federal Home Mortgage Disclosure Act and paired it with home value information to paint a picture of housing market access and performance by race, both nationwide and in several large metro markets.The results were stunning.

Together, Hispanics and blacks compose 43 percent of the population in metro Atlanta, but submit only 12 percent of conventional loan applications. In a modest improvement, 40 percent of loan applications backed by the Federal Housing Administration – loans designed to make home ownership more accessible for more borrowers – are submitted by black or Hispanic applicants.

But not only are they applying less often, when they do apply, they’re far more likely to be denied.

Black applicants for conventional mortgages in Atlanta were almost three times more likely to be denied than white applicants; Hispanics were denied more than twice as often as whites. Black and Hispanic denial rates for FHA loans were actually higher than for conventional loans: 26 percent and 23 percent for FHA loans, respectively, compared to 25 percent and 19 percent for conventional loans.

Fewer applications, coupled with more denials, of course means fewer homeowners. Home ownership rates among blacks (47 percent) and Hispanics (43 percent) in Atlanta is well below that of whites (76 percent).

Additionally, in Atlanta’s predominantly black and Hispanic neighborhoods, home values fell farther during the recession and remain farther behind in their recovery than white neighborhoods. From the peak of the market to the bottom, median home values in black neighborhoods fell 51 percent; in Hispanic communities, home values fell 43 percent. In white areas, home values fell “only” 22 percent.

At of the end of 2014, home values in black neighborhoods remain 34 percent off their peak levels, and 20 percent below peak in Hispanic areas. Home values in white neighborhoods, meanwhile, have almost entirely recovered, currently a mere 2 percent below pre-recession peaks.

It can be tempting to blame these numbers on overt discrimination, but Home Mortgage Disclosure Act data aren’t detailed enough for us to determine discriminatory differences. In reality, what we’re really observing are consistent and critical differences in qualifications and resources among black, Hispanic and white borrowers which affect their ability to secure an affordable home loan.

In Atlanta, the median income among black and Hispanic households is $42,000 and $39,000 per year, respectively. For white households, the median income is $69,000 per year. Many of these income disparities can be attributed to overall unemployment by race: Currently, roughly 15 percent of blacks and 10 percent of Hispanics in greater Atlanta are unemployed, compared to 7 percent of whites.

Given how critical a healthy income and steady employment are toward securing the dream of home ownership, it’s no wonder experiences are so different among races.

But there is some hope for the future. Home values in predominantly black and Hispanic communities are expected to grow by 17 percent or more over the next year, compared to roughly 10 percent in Atlanta’s largely white neighborhoods.

Owning a home is a fundamental part of the American Dream; it is a dream shared equally among all races. But while the goal is equally shared, the reality is strikingly different. For all the progress we’ve made toward social equality over the past century, it’s clear we still have a long way to go.

Resources constrain growth

By Russell England

I have often heard talk show hosts opine that a course in basic economics should be a requirement of all students. I agree with this, but believe a course in basic ecology should be a requirement. Not only should both courses be taught, but each should include discussions of why the two disciplines are at odds and how each can better understand the other.

If so, it would be apparent that Atlanta’s slowdown in economic growth is not such a disaster. With a knowledge of basic ecology, it would be understood that growth is not sustainable in the long run and certainly that lack of population growth in an already-crowded area such as Atlanta should not be considered a bad thing.

Why hold up a city like Dallas as being a place that Atlanta should try to keep up with? Why Dallas, with its dependence on the oil industry, when the world only has proven petroleum reserves to last a mere 50 years at current usage rates, much of which will require new technology and high cost to extract?Dallas, like Atlanta, depends on surface water reservoirs for its water supply. Yet the Dallas area has an average annual rainfall of barely 40 inches or more; the Lake Lanier basin averages more than 60 inches per year. Dallas has virtually run out of places to build new reservoirs. Its citizens are under water-use restrictions even in the wintertime.

When will economists stop measuring “progress” in terms of gross domestic product? When will they wake up and realize that bigger is not better?

A business that focuses on gross sales and ignores net profit is bound to fail. Likewise, a society that worships economic growth – when such growth is fueled by ever-increasing debt, endless population growth and depletion of natural resources — must ultimately fail.

Supposedly, economists recognize the scarcity of resources and try to figure out how to allocate them to benefit the most people or to find alternative resources.. Scarcity implies limits, whether they be land, coal or manufactured goods. You name it.

If economists can recognize scarcity, it seems that they should be able to recognize limits. If they could recognize resources are finite, it would seem they could also recognize that perpetual economic growth, which demands ever-increasing resource use, cannot be a viable long-term strategy for economic well-being.

Sooner or later growth must be restricted by limits. The world has finite resources and cannot support unlimited population. There are finite supplies of carbon-based fuels. The earth has a limited amount of fresh water and that is shrinking as underground aquifers are drawn down and sedimentation and evaporation shrink surface reservoir yield. Growth beyond carrying capacity ensures an eventual lower standard of living for the vast majority of people.

What happens when the fossil fuels that support large populations with high living standards are depleted? It should not require a degree in either economics or ecology to answer that question.

Russell England lives in Gainesville.

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