Deb O'Dell is a working mother of two who has been renting since her divorce several years ago.
"I initially did feel that I had missed the housing boom," she says admits of her first years in the two-bedroom 1,200-square foot Oswego home she shares with her children and two dogs at Prairie Brook Apartments at Farmington Lakes.
But now, with home sales slowing and foreclosures swelling, O'Dell says, "I'm kind of relieved I didn't buy because I would be tied to a mortgage I couldn't afford."
O'Dell is one of a growing number of people choosing apartment living in what experts say is a tightening local rental market.
"A lot of people have been frightened off by the current real estate market and are continuing to rent or are deferring buying," says Maurice Ortiz, marketing director for Chicago-based Apartment People, an apartment finding service in Chicago and the North Shore. "We are approaching a landlord's market," he says. After struggling for several years to keep units filled while tenants were lured to buy homes with low mortgage rates and fast price appreciation, many apartment complexes boast an occupancy rate of 95 percent and higher, according to real estate experts.
In addition to high occupancy, big local landlords are enjoying the lowest turnover rates in years despite 2007 rent increases of ranging from 2 to more than 11 percent, according to a survey of the Chicagoland Apartment Association. Downtown luxury apartments have shot up 17 percent in the last two years, according to Appraisal Research Counselors, a consulting firm.
The reason for this turnaround is the continuing job growth -- albeit slow -- in the Chicago area, a dearth of new apartment construction to replace units converted to condos and growing consumer jitters about the real estate market.
"Demand is up. Supply is down," says Judith Roettig, executive vice president of the CAA with members representing 136,000 rental units in a six-county area.
The rental market was hit hard early in the decade by the departure or closing of several major local employers. Then came an economic downturn following the terrorist attack on New York City and Washington, D.C., Sept. 11, 2001.
Next, an unprecedented housing boom forced landlords to keep rents down or offer concessions, essentially rolling back rents, to keep units filled.
It was so tough a number of owners simply got of the business -- either by selling to condo converters or converting the units themselves. The loss of apartments was particularly strong in Chicago, where in 2005 alone 3,832 downtown apartments went condo, says Ron DeVries, vice president of Appraisal Research. And that does not include conversions beyond the downtown area or buildings of less than 25 units.
A lack of incentive to buy or build for several years has limited apartment development in the metro region, though 57 percent of Chicago-area residents are renters, according to the CAA.
But as home sales have slowed so have rental move-out rates as apartment dwellers re-think the benefits of buying.
Diana Pittro, executive vice president of RMK Management, which manages more than 6,000 units in metro Chicago and Minneapolis-St. Paul, says 45 to 50 percent of rental residents typically move out each year. In 2007 the rate is 40 to 45 percent so "most properties are enjoying a high renewal rate."
And it may be lower in more desirable neighborhoods.
"I had one building with eight units where only tenant moved this year and that was because he was transferred by his company to another city," says Mary Prekop, manager of Victorian Independent Properties, which has more than 40 apartments in Old Town and Lincoln Park in Chicago.
The stability is good news for landlords, many of whom hiked rents in 2007 to catch up for the years when rents trailed rising operating costs.
"We are almost back to 2000 and 2001 [rent] levels," says Prekop, who adds that utilities, taxes and "insurance -- you don't know how much for insurance" has skyrocketed in recent years.
The average gross rent in luxury rental buildings downtown rose to $2.31 a square foot in the second quarter of 2007, the latest figures available from Appraisal Research, up 3.6 percent from a year earlier. So the monthly rent for a typical 920-square-foot, two-bedroom apartment is $2,125.