Data Analysis

The Boomtown Fallacy

/ Ryan / 9 Comments

There seems to be an ongoing narrative in Ann Arbor about “growth” and “development” that labels what’s transpired here as something of a boom town, an area of unchecked and rampant development that threatens the very fabric of our community. People see the retail and rooftops at the edges and perhaps most importantly the shiny new buildings downtown and the perception is we are experiencing a period of high growth, particularly in this extended period of economic expansion following the Great Recession.  This has rankled me for some time because here’s the thing: it’s not even close to true.

I pulled data from a number of places to illustrate. One caveat here, the definition of Ann Arbor and the area is different depending on the data source and period of time. For the purposes of this post, I am largely focusing on the city of Ann Arbor and adjacent townships and leaving aside Ypsilanti for now. Thus subject market area is Ann Arbor, Ann Arbor Township, Barton Hills, Scio Township, Lodi Township, Pittsfield Township, and Superior Township, generally encompassed in Zip Codes 48103, 48104, 48105, 48108, and 48109. First, just for a sense of bearing, here is the population for that selected geography:

Year Population 10 Year Growth
1900 20,994
1910 20,656 -1.61%
1920 24,958 20.83%
1930 35,471 42.12%
1940 45,074 27.07%
1950 76,597 69.94%
1960 93,375 21.90%
1970 130,785 40.06%
1980 146,900 12.32%
1990 159,480 8.56%
2000 186,174 16.74%
2010 197,252 5.95%
2020 221,471 12.28%

This data is from SEMCOG and that rosy 2020 number is obviously a projection but let’s say it holds true. The average growth over the last 100 years has been 23.99% per decade, 25.32% since WWII. Thus this decade, while a pickup from the previous 10 year period would still be half the population growth of an average decade. Hardly a “boom town”.

I also looked at development, both across all types and just focused on housing.  Here is housing permit data, also from SEMCOG.

Year Single Family Two Family Attach Condo Multi Family Total Units
2000 850 10 163 63 1,086
2001 708 34 202 287 1,231
2002 624 8 414 120 1,166
2003 733 12 507 56 1,308
2004 646 12 370 217 1,245
2005 456 4 301 101 862
2006 186 12 114 64 376
2007 146 12 228 107 493
2008 93 4 21 100 218
2009 74 6 4 165 249
2010 125 2 35 0 162
2011 121 2 0 321 444
2012 165 4 22 348 539
2013 223 0 78 342 643
2014 202 4 21 440 667
2015 220 4 38 464 726
2016 244 4 66 347 661
2017 214 2 181 487 884
2018 284 0 206 764 1,254
2019 205 36 32 457 730
2000 to 2019 totals 6,519 172 3,003 5,250 14,944

This data is readily accessible in just the last two decades (I will continue mining for further back and will post an update) but it’s obvious that in recent times, current housing permits are no anomaly and certainly down from the early 2000’s, up from the recession.

Here is data compiled from CoStar regarding multi-family properties and year built.

Era All Units Market Rate Units Student Units
Pre-1900 239 217 7
1900-1909 923 791 126
1910-1919 303 271 32
1920-1929 332 229 103
1930-1939 51 51 0
1940-1949 31 25 5
1950-1959 1,221 800 4
1960-1969 9,907 8,188 984
1970-1979 10,926 8,171 494
1980-1989 4,524 3,916 120
1990-1999 3,546 2,717 48
2000-2009 1,599 614 692
2010-2019 2,646 1,080 1,203
Total 36,248 27,070 3,818

Boom town appears to be from 1960 to 1980 here. The only thing that has really picked up is student housing which will be covered in more detail below.

Here is square footage of all commercial properties that CoStar tracks by year built. Again, recent development across the area approaching half of historic highs and down significantly from even recent years.

Era Square Feet
Pre-1900 711,000
1900-1909 1,900,000
1910-1919 364,000
1920-1929 100,000
1930-1939 477,000
1940-1949 736,000
1950-1959 2,300,000
1960-1969 13,500,000
1970-1979 11,700,000
1980-1989 11,400,000
1990-1999 11,200,000
2000-2009 8,300,000
2010-2019 6,000,000

It’s pretty clear from just about any relevant piece of data that Ann Arbor is not experiencing some sort of out-sized development boom. In fact, growth is relatively modest historically, a far cry from even recent times. The 1960’s and 1970’s was a legitimate boom, relatively speaking.

Hub-Ann-Arbor-Content-1.jpg?format=2500w

No analysis would be complete without looking at the one outlier, likely the one driving the conversation the most, that being student housing. Since 2000, there have been 1,842 units of student housing added, representing 5,197 beds. In just the past decade, nine private high-rise student housing projects have been completed in the greater downtown area, dramatically changing the skyline. However, it’s important to note that the university enrollment has grown by 8,613 students since 2000. Even adding in the university’s new dorms, North Quad (450 capacity) and Munger Graduate Residences (630 capacity) there’s still 2,366 more students than beds built over the same time period. Furthermore, all of those developments are walking distance to campus with limited parking and are scheduled to pay annual real estate taxes of nearly $17,000,000(!). In short, if you’re an Ann Arbor resident, those projects are the just about the best thing that can happen, housing students close to campus, keeping cars off the road, and paying boatloads of taxes.

As always, to each his or her own but the data doesn’t lie.

 

Ann Arbor Student Housing – 2018 Update

/ Ryan / 3 Comments

Around this time last year, I wrote a post entitled “The Truth about Student Housing in Ann Arbor” that was something of a response to all the comments I was hearing about the new developments cropping up around town. I work in the student housing industry to a certain degree so had first hand market research at my fingertips and was able to share some cold hard facts on the subject.

Hub Ann Arbor

Hub Ann Arbor brought 310 beds to Huron St in August, 2018.

The down and dirty was that student housing development had not remotely kept up with demand as enrollment growth and decades of limited (essentially zero) additions to the student housing market had created significant pent up demand even aside from any population gains in the student body.

Occupancy was over 99%, the highest of any of the 50+ university markets we have polled over the years with rents continuing to grow.

However, 2018 brought the most significant additions to the private student housing scene in the university’s history, 1,247 beds in three new complexes opened in August. Thus, time for an update on the scene.

Michigan_ResearchReport_2019

Despite a huge addition on the supply side, occupancy stayed an extremely healthy 98.32%. Overall rents were up 4.64% from a year ago but that is skewed by such a large swath of new, higher priced housing. Apples-to-apples rental rates of existing buildings increased a more modest 1.81% buoyed by huge increases in Studio and 1 Bedroom units, 12.52% and 10.50%, respectively. Most of the new developments have been focused on larger unit types as they are seen as more profitable (4+ bedrooms, only 1 kitchen) which has put serious pressure on the relatively few studio and one bedroom residences.

The three newest properties, Hub Ann Arbor, The Yard, and Six11, opened at 98.40%, 100%, and 96.00%, respectively.

Anecdotally, I did see more advertised specials and discounts, particularly for Six11, so it is possible that effective rents did not increase as much as asking rents.  However, smart money would bet that any minor hiccups experienced in lease up this year will be smoothed over next year when only the 253-bed Vic Village North will open (replacing Ulrich’s).

Enrollment continued to grow, up 1.55% this year to 46,716, so demand shows no signs of slowing. What may be interesting to see is the effect of the university’s efforts to improve socioeconomic diversity on the private housing market.  Notably the Go Blue Guarantee which officers free tuition to families with incomes under $65,000 and significant support to families earning under $180,000.  Obviously lower income students will be less likely to bite off on the premium rent levels being charged at newer developments.

Thus, another year, another very healthy lease up in the student housing market in Ann Arbor.  As I have noted before, it’s hard to even imagine a scenario where these buildings were not built.  By necessity there would be nearly 4,000 students living elsewhere around town, moving further out into the neighborhoods or commuting in from the edges of town.

 

Comparing Population, Apartment Rent & Supply Growth Across the Midwest

/ Ryan / 8 Comments

A lot has been made of high rental rates here in Ann Arbor, I even undertook a review of the state of the student housing rental market just last month (spoiler alert: the rent, occupancy and rate growth is bananas). However, this issue is not unique to our town, rents are skyrocketing virtually everywhere. Being the data junkie that I am (and having access to this sort of data at my day job), I wanted to take a look at how the Ann Arbor MSA stacks up to other markets in terms of rental rates and growth. I pulled information on 65 different Midwest markets and for good measure, I also looked at population growth, unemployment rates and inventory changes from 2012 to 2017. I last took a statistics class my sophomore year of high school so I’m certainly missing some significant conclusions but I’ll offer up a few observations that stand out to me.

As it relates to Ann Arbor specifically, our community posted the sixth highest rental rate at an average of $909 per unit, Chicago is first at $1,046. A2 is tied for the third lowest vacancy rate at just 3% trailing Appleton, WI and Jackson, MI(!). The five year rent growth of 20.13% is fourth, firmly planted in with the bigger metros of Kansas City, Columbus, Grand Rapids, Chicago and Minneapolis. This seems to be driven in part by a supply side gain of just 2.82%, only two other markets with any type of population growth, Kalamazoo and Elkhart, added less. For those that think Ann Arbor is going through a revolutionary development boom, we’re actually doing less than most of our neighbors.

oakcliff-photo-1

Oakcliff Apartments, 217 units added to the supply side in Ann Arbor in 2015.

In general, college towns are growing, factory towns are not. No shock there. Of the top 10 growth metros, 8 have a major university. The areas bleeding population include Flint and Saginaw here in Michigan, Youngstown, OH and Rockford, IL.

The Great Plains are the place to be. Markets in Iowa, Minnesota and Nebraska seem to be fairing extremely well. Strong population growth, extremely low unemployment and impressive rent growth.

Supply side growth, or lack thereof, is an obvious major factor in rent growth. Certain markets with no new inventory like Elkhart, Jackson or Muskegon actually saw strong rent growth despite lack of population growth and lagging employment. There is a somewhat strong correlation (see Dr. Elzinga, paid a little attention in stats) between supply growth and rent growth although not between supply growth per capita and rent growth. I suspect that a sizable percentage of rent growth is inorganic in that it’s coming from high new construction rents rather than rising existing rents. Certainly rents are going up in existing buildings as well but markets with a lot of new construction skew the numbers upward.

All in all some thought provoking data. Interested to hear other’s conclusions.

 

Note: All rent, inventory and occupancy data sourced from CoStar Group.