Ann Arbor Student Housing – 2018 Update

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

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.