by Calculated Risk on 5/30/2006 06:08:00 PM

The USA Today reports: Apartment rents expected to rise 5%

Apartment rents are expected to increase 5.3% this year - about double last year's increase - the National Association of Realtors says. That's the highest jump since 2000 ...

"This is going to be the highest rental increase year since 2000, and it's going to be a broad-based increase in rents, not just limited to a few markets," said Hessam Nadji, who manages research for Marcus & Millichap, a real estate firm in Northern California.

The article offers these reasons:

• Job growth. U.S. businesses have generated 4 million new jobs in the past two years. New hires typically look for rental property.

• Rising home prices. From 1980 to 2000, the median price of a home was 12 times higher than the annual average rent. By this spring, it was 21 times higher, Nadji said.

• Condo conversions. When the housing market was at its blazing peak, many investors who owned apartment buildings kicked out tenants and sold the units as condos. One out of three apartment buildings sold last year were converted into condos for sale. That took 191,400 apartments off the market, according to the NAR. In addition, the number of new apartment buildings under construction is down this year.

• Hurricane Katrina. About half the 100,000 displaced families in the New Orleans area haven't returned. Most of them were renters, says Lawrence Yun, an NAR economist, and "that's putting additional pressure on rental units throughout the country."

The first two reasons are weak. There is nothing special about 4 million new jobs over two years. This would only matter if the new supply of housing units didn't keep up with growth.

And the ratio of Price to Rent could fall without rents increasing; house prices could fall instead. For some reason the Realtors didn't mention this alternative!

The last two reasons make sense: there is less supply due to condo conversions and the destruction caused by Hurricane Katrina.