HousingLink Blog

Apartment Rents Close the Gap

by Unknown  |  Jul 23, 2012, 15:22 PM
What a difference three quarters makes! When we first started collecting this data, shadow market rents significantly outpaced apartments. This wasn't a surprise because it made logical sense to most that a renter is willing to pay more for a 3 bedroom single-family home than a 3 bedroom apartment. However, that logic may no longer matter in this hot rental market! Consider this:

One Bedroom Units

In 2011 Q3, the median rent for a shadow market 1 bedroom was $91 higher than an apartment ($800 vs. $709).

In 2012 Q2,  the median rent for a shadow market 1 bedroom was $5 less than an apartment ($775 vs. $780).

Two Bedroom Units

In 2011 Q3, the median rent for a shadow market 2 bedroom was $204 higher than an apartment ($1,099 vs. $895).

In 2012 Q2, the median rent for a shadow market 2 bedroom was $100 higher than an apartment ($1075 vs. $975).

Three Bedroom Units

In 2011 Q3, the median rent for a shadow market 3 bedroom was $100 higher than an apartment ($1,300 vs. $1,200).

In 2012 Q2, the median rent for a shadow market 3 bedroom was $5 higher than an apartment ($1, 300 vs. $1,295).

Interesting Trends Worth Noting:

1. Shadow market rents have gone down or remained flat over the past three quarters.

2. Apartment rents continue to climb:

  • 1 Bedrooms up 10%
  • 2 Bedrooms up 9%
  • 3 Bedrooms up 8%

Why are Shadow Market Rents Flat or Down?
The first place we looked for an answer within the data was in building type. Were there fewer single-family home rentals and more townhomes and duplexes that caused the rents to remain flat? No. Single family homes made up 28% of the rental market in 2011 Q3, and 27% in 2012 Q2.

The second place we looked was in total number of listings advertised. Two and three bedrooms had a similar number of listings in 2011 Q3 and 2012 Q2. One bedrooms had about 600 more in 2012 Q2. It is possible that increased competition has suppressed one bedroom rents in the shadow market. Something else is likely in play as well.

The motivations of many shadow market landlords are different. Their concerns are more about covering the mortgage than increasing profit. This particularly comes into play at lease renewal. A shadow market landlord may lack the capacity (and cash flow!) to raise the rent, find a new renter, cover turnover costs, etc. As a result, rents remain flat, while the professional operators of apartment communities have the capacity to raise rents, turnover units, and maximize cash flow in this hot rental market.

What are your thoughts? Write a comment below!

Apartment Rents Surge & the Shadow Market Contracts (but not for long)

by Unknown  |  Apr 17, 2012, 13:04 PM

The 2012 Q1 Twin Cities Rental Revue just came out and there are some market changes worth noting. Apartment rents continue to increase as one bedrooms rose to $750, marking a 9% jump since Q2 of 2011. Two bedroom apartments increased to $925 and were also up 9% since 2011 Q2. Overall there were 700 more apartment units available to rent in Q1 compared to the previous quarter. This is likely a seasonal impact, as there were 800 fewer openings in Q1 compared to 2011 Q3.


The Shadow Market is compelling right now. Rents were either down or flat across the board in Q1 of 2012 compared to the previous quarter. Most interesting is that there were 1,800 fewer units available compared to Q4 and 3,100 fewer than Q3. Also, for the first time since we started tracking this data we saw the Shadow Market compose fewer than 60% of openings listed. In Q1 Shadow Market units made up 57% of all open listings. It is still significant but trending downward...for now.


Check out this article in the Huffington Post: Turning Foreclosed Homes Into Rentals Could be $100 Billion Industry This Year

Bank of America is running a pilot program called Mortgage to Lease to rent homes to families that have been foreclosed on. Bank of America also recently announced a bulk offering of 500 foreclosed homes in six different states (none in Minnesota). In addition, private equity firms and hedge funds are spending hundreds of millions of investment dollars to buy up foreclosed properties. Don't forget about Fannie Mae and Freddie Mac! They recently put up 2,500 of the 200,000 foreclosed homes it currently owns for sale.


It is hard to tell when this activity will hit the Twin Cities, but it seems inevitable. We will continue to track the trends in Twin Cities Rental Revue and keep you posted.



How much does the Shadow Market impact Apartment rents?

by Unknown  |  Feb 6, 2012, 12:28 PM

The Star Tribune recently reported on the thriving multifamily sector.  You likely know that apartment vacancy in the Twin Cities is low (2.3% in Q3 of 2011) and rents are rising.

However, the article noted that even though demand is booming, rents are only slowly rising. What role does the shadow rental market (condos, duplexes, houses, town homes) have in slowing apartment rent increases?

Is it that in bad times the shadow market eats into apartment occupancy and in good times prevents a more rapid rise in apartment rents? Let's dig into the data of Twin Cities Rental Revue:

In Q3 and Q4 of 2011 the Shadow Market made up 62% and 65% of openings listed in the Twin Cities.

What does this mean? Though openings are slim in apartments, renters still have plenty of other alternatives in the shadow market. These alternatives may act as a weight on rent increases in apartments, preventing them from rising as fast or as much, even in a strong rental market.

Twin Cities apartment rent increases from Q2 - Q4 of 2011 (Median Rents)

0 BR - No Change ($580 to $580)

1 BR - Up 4% ($690 to $720)

2 BR - Up 4% ($850 to $885)

3 BR - Up 4% ($1,142 to $1,190)

4+ BR - Up 8% ($1,195 to $1,297)

Twin Cities shadow market rent increases/decreases from Q2 - Q4 of 2011 (Median Rents)

0 BR - Up 16% ($585 to $695)

1 BR - Up 2%   ($795 to $813)

2 BR - Up 2%   ($1,025 to $1,050)

3 BR - Down .7% ($1,295 to $1,285)

4+ BR - Up 4%  ($1,525 to $1,590) 

The primary floor plans where the shadow market competes with the apartment market are 1, 2, & 3 bedrooms. It is interesting to note that shadow market rent increases for 1 & 2 bedrooms were smaller than the apartment market (2% compared to 4%) and there was a slight rent decrease in shadow market 3 bedrooms.

What do you think? Is the shadow market contributing to slower rent increases in the apartment market?



The scope of the Shadow Market (condos, duplexes, houses, townhomes)

by Unknown  |  Nov 23, 2011, 10:56 AM

The scope of the shadow rental market of condos, duplexes, houses, and townhomes was largely a mystery until now. The quarter three Twin Cities Rental Revue provided unique insight into shadow market activity.

Would you have guessed that only 38%% of listed openings in the Twin Cities were apartments and 62% were shadow market? Here is the breakdown of Q3 openings by building type:

  • Apartments - 38%
  • Single Family - 28%
  • Townhomes - 15%
  • Duplexes - 12%
  • Condos - 6%

These numbers indicate that the shadow market is a force in rental housing, and  raises the question about the true availability of rental housing in this market. News stories indicate that vacancy is declining, but those numbers don't account for shadow market units. It will be interesting to track the number of shadow market openings over time.