Projecting Rental Vacancy Rates

September 23rd, 2021
Projecting Rental Vacancy Rates

Whether you are a property owner or a property manager, you know that an empty unit undermines your reputation and profitability. It’s important to know whether that empty unit is the result of a momentary delay in finding your next renter or part of a larger movement in the market. Knowing the current rental vacancy rates -- and projecting rates for the months and years to come -- is of vital importance for much of your decision-making.

Knowing vacancy rates in your market and accurately predicting what’s next will help you determine whether:

  • To purchase or build additional units.
  • To implement updates or otherwise improve your properties.
  • To improve your marketing or change your management practices.
  • To change your application process or rental requirements.
  • To raise or lower your rent for the next tenant.
  • To change your onboarding or tenant retention strategy.
  • To develop an exit strategy for some or all of your holdings in a particular market.

rental-vacancy-rates-infographic

Developing a projection for rental vacancy rates in your market

While no one has a crystal ball, it’s important to be able to extrapolate from current trends to develop an accurate projection of the future of your market. This involves looking at current numbers as well as a variety of economic, political, and lifestyle factors that can have an impact on rates down the road.

You can find information on current vacancy rates in a number of places, including:

  • US census figures.
  • Real estate professionals, especially those who commonly work with investors or who are involved in property management services.
  • Real estate associations and professional organizations at the local, state, and national levels.
  • Government offices, the Chamber of Commerce, and other organizations that gather and evaluate data on your market.

Remember, it is important to determine whether a short-term change is a mere blip on the radar or if it is a sign of a long-term trend. While this is not always knowable, it’s good to think long-term in order to avoid reacting too quickly to a short-term change.

Factors influencing rental vacancy rates

There are a number of factors that impact rental vacancy rates in particular. Rates can go up or down, depending on trends at the local, regional, or national level.

Reductions in overall vacancy rates can come about because of

  • Low inventory in one or more housing segments
  • Increased demand due to an influx of new residents
  • Generational or other demographic changes resulting in higher housing demand

Increases in overall vacancy rates can be caused by

  • Increased inventory due to a new residential development.
  • Decreased demand due to the loss of jobs or industry in a market.
  • Generational or other demographic changes resulting in lower housing demand.

In addition, some singular events can occur that create significant changes to vacancy rates in a given area or across the available inventory on a large scale. One example of this is the COVID-19 pandemic which has caused unprecedented disruption in a number of residential market segments.

Surges in demand for single-family homes, especially those in suburban or rural areas, caused a lack of inventory and lower vacancy rates for those properties in markets all over the country. At the same time, many multi-family communities saw an attendant reduction in demand, leading to higher vacancy rates, especially in crowded urban centers.

California rental and homeowner vacancy rate projections

The latest numbers are out for the California housing market, indicating increasing demand for both buyers and renters.

Rental vacancy rates

During the early days of the pandemic, cities emptied as young professionals returned home to live with their families while some chose to purchase single-family homes in suburban and rural markets. Now, however, rising rental rates in urban areas indicate increasing demand for in-town apartments and lower projected vacancy rates in the months ahead.

One unknown that may significantly impact vacancy rates is the end of COVID-era protections for renters whose income was disrupted by the effects of the lockdown. This could lead to destabilization in the rental market as landlords choose whether to initiate evictions or work with tenants on repayment plans.

Homeowner vacancy rates

According to projections developed by the California Association of Realtors (CAR), demand for homeownership is projected to continue to rise modestly in markets throughout the state, even as home prices increase. CAR cited both the favorable mortgage lending environment and active interest in homeownership as primary factors driving the low-inventory, high-demand environment.

Low home inventory has been an ongoing issue throughout the pandemic as homeowners held onto their properties, unwilling to open their homes up to potential buyers for tours or to risk moving in the midst of spiking rates of infection. With FDA approval of the Pfizer vaccine leading to more widespread vaccination rates, CAR’s Consumer Housing Index is predicting increasing home inventory in the months ahead. However, high rates of demand promise to keep vacancies low, even if more homeowners choose to sell.

Reducing vacancy rates in your investment properties

One of the most important ways to reduce vacancy rates in investment properties is to ensure that rental properties are priced right for their market. In addition, it’s important to stay abreast of features, perks and amenities in competing properties to ensure that your rental is showing favorably against those in the same market segment.

In addition, effective tenant retention helps to ensure lower vacancy rates and a more stable rental income. Make sure that you are communicating with your tenants, making repairs in a timely manner, and offering convenient options like online rent payment to keep tenants happy in their current rental home.

Stay ahead of the curve -- and the competition -- with RentSpree’s rent estimate report. Instead of guesstimating what lies ahead in your market, you’ll be able to evaluate hard numbers and see upcoming trends before they happen. That gives you the lead time you need to maximize the value of your current properties, develop winning acquisition strategies in new markets, and refine your management processes each month.