Tuesday, December 19, 2017

Too many apartments in Baltimore?

In 2008 when the economy tanked as a consequence of the financial crash and the burst of the various bubbles it produced, people in Baltimore and many other cities took a hit. So did the real estate market which often is seen as a proxy of the economy. For a while the only apartment projects were affordable tax credit deals and to some extent those projects took place in dis-invested areas such as the Gateway homes on North Avenue (a second phase is underway) and the Lillian Jones apartments on Greenmount Avenue. Today the real estate market seems to be humming along with market rate and luxury housing. Since household income is still lagging in what has become the typical inequity of the US economy the supply addresses more and more a narrow segment of affluent population while waiting lists for affordable units continue to grow, a formula that is neither fair nor economically sustainable.
Fewer owners, more renters drive up demand (HUD)

Is there another bubble brewing with all those apartments going up in Baltimore? The Baltimore Business Journal asked the question already in February of 2016 and has asked it again this month when it reported that the hot apartment market cools in spite of a positive report analyzing demand up to 2022 commissioned by the Downtown Partnership. The numbers are rather startling considering that the City overall has failed to grow and is even said to have shrunk slightly (The Census Bureau estimated a loss of 6,700 residents for 2016). However, population isn't the whole story, because demand is also driven by a shift from ownership to rental.
  • 12,500 new apartments have been built between 2001 and now
  • 3,500 units have been added in the last five years
  • Monthly absorption rates for "class A" apartments have slowed to a crawl of 4-5 a month

Some of the biggest projects with over 2 000 class A more units are still under construction or still on the drawing board including:
  • Nearly 400 luxury units  at 414 Light Street (McCormick site)
  • The  Liberty at Harbor East with over 300 apartments and condos
  • about 350 apartments at 22 N. Calvert 
  • about 280 units at One Light Street across from the Bank of America Tower
  • over 100 units at the Nelson Kohl building on Lanvale Street in Station North
  • 380 units are planned in Little Italy where the Della Notte once stood
Adding in all smaller residential projects over 5,600 units were under construction in April of this year as the Planning Department reported.
Stronger and weaker markets based on housing value appreciation (HUD) 

At the recent 21st Century Cities Symposium organised by Hopkins one speaker concerned about the lack of equity in investments across cities ("Household and Neighborhood inequality") said:
When some areas grow much faster than population growth then we cannibalize older areas. Paul Jargowsky, Rutgers
While this view is a bit static and sounds like nobody moves to Baltimore from the outside, it is true that Baltimore's essentially stagnant population means that for each person coming in another one leaves. People are moving into the trendy areas and they are leaving from the large swaths of Baltimore which haven't seen much new investment in decades. A not legitimate short-cut conclusion is that if no new people would move to downtown, Remington, Locust Point or Hampden, fewer people would move out of traditional neighborhoods. That is likely only true to the extent that public infrastructure investment is unduly concentrated in trendy areas.
Nelson Kohl  apartments Lanvale Street

With over 2000 units still in the pipeline the new projects are beginning to cannibalize each other and like also the older apartments even in the trendy areas such as Mt Vernon. If the reported 5 units per month absorption for class A apartments is only nearly true, it would take 33 years to absorb them all.

The large supply will dampen rents, for sure, but they can only go so far down until the rents don't cover the cost of construction, the point where a  market begins to crash. It is safe to say that Baltimore has now an apartment bubble, unless the city finds a way to finally grow its population for real and shifts construction to where the demand is, i.e. more affordable units.

Klaus Philipsen, FAIA

BBJ: Baltimore's hot apartment market cools, experts say, but will be fine long term
HUD: Comprehensive Housing Market Analysis Baltimore-Towson
BBJ about real estate report Sept 17
Flood of new apartments in Baltimore raises question ... - Baltimore Sun

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