America is running out of vacant apartments.
Rental-apartment occupancy in the US reached 96.5% in the third quarter, according to RealPage, a provider of property-management software.
That's just under the all-time peak of 96.8% reached during the tech boom in 2000, according to the firm.
The flip side of occupancy — vacancy — also shows a strained picture. According to the Census Bureau, the rental-vacancy rate remained near a 30-year low of 6.7% in the second quarter. Third-quarter data will be released later in October.
The apartment shortage, coupled with strong demand, is also contributing to rising rental costs at a time when incomes aren't keeping up. RealPage found that monthly rents for new-resident leases now average a record $1,292.
The main problem is that too many millennials are chasing too few apartments.
"You have an awful lot of young adults who are in a stage of their life where renting an apartment makes sense," said Jay Parsons, vice president of MPF Research, a division of RealPage.
Also, not enough people are moving out and buying their own places. A RealPage report published early in September showed that a record number of renters were opting to renew their leases because it was harder to find an affordable apartment to rent or buy.
"With loss of renters to home purchase holding below the historical norm, the limited churn of residents is helping keep the occupied apartment count high," said Greg Willett, RealPage chief economist, in a press release.
The apartment crunch is mostly in two types of apartments, Parsons said: so-called Class A apartments, which are high-end buildings often downtown or near central business districts, and Class C apartments, which are cheaper and have fewer perks.
"While an upturn in high-end [apartment-unit] deliveries is yielding more product availability in select spots, most new projects are moving quickly through the initial lease-up process," Willett said.
Meanwhile, it's getting tougher for builders, Parsons explained. That's partly because land is more expensive, skilled-worker shortages have driven up labor costs, and building materials are pricier, too.
And builders have fewer incentives to build apartments that will charge affordable rents.
"The math just doesn't work to build anything other than a Class A, high-rent property unless you have tax credits or government subsidies," Parsons said.
"Our national housing policy is very much geared towards stimulating home purchases not towards supporting renters, and so we just aren't building hardly any of the designated affordable, income-restricted housing where there's also just an awful lot of demand."
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