Demand like ‘we’ve never experienced’
Realtors cite location, pricing and more as factors that contribute to increased difficulty to rent in Lehigh Valley
Alyssa Keyser was eager to start a new chapter in her life, which required finding a place to live.
She found it in a new complex in Allentown, a two-bedroom, two-bathroom apartment for her and her children. It was a short commute to her job and the complex featured a gym and a washer and dryer in each unit.
Like many in the Lehigh Valley seeking a rental these days, it wasn’t the easiest of searches. Keyser considers herself fortunate to find her place in only two months.
“Oh my gosh, yeah,” she said. “Because it can be months. Still, until I was able to find a place, if I liked something it might not be available.”
It was an added stress for Keyser, who is going through a divorce.
“I definitely didn’t want to stay in my house anymore,” she said. “So it’s like how much longer is this going to take? Then, of course, there’s the approval processes and background checks and all that. So it’s like, if you don’t get approved for one, then you have to start the process all over again somewhere else.”
Keyser is far from alone. Rentals are difficult to find, leasing agents are reporting, as a growing population and an influx of newcomers to the Valley have made competition for living quarters very intense.
New apartments are being built. City Center in Allentown currently has two buildings with 365 units under construction in the downtown area and has two more buildings with 182 units in the works. Jaindl Enterprises is constructing them along the Lehigh River in The Waterfront project. Terrain on the Parkway was recently opened in Allentown by Scully Co. with 160 units.
And it still won’t be enough.
Simply put, there is a supply and demand problem with rental properties in the Lehigh Valley, and it doesn’t look like it’s going to get better anytime soon.
“I’ve been in the apartment business, developing apartments since the late 80s,” said J.B. Reilly, president and co-founder of City Center. “We’ve never experienced the demand like we are experiencing today. Period. Occupancy rates are at historical highs, across all property segments across the Valley. There’s just not a lot of availability out there.”
One Realtor says potential tenants are offering to pay higher rent just to get into any apartment.
“Basically right now, no matter what we have on our rental properties, we have a waiting list for everything that we have right now and unfortunately have nothing coming due,” said Tim Tepes, a Realtor with Assist-2-Sell Buyers & Sellers Realty in Northampton. “We’re having people calling and willing to pay a year’s worth of rent up front and willing to pay $100 to $200 to sometimes $300 over rental value over the rent to get the unit.”
Keyser said she had to forward the equivalent of three months’ rent to get into her place.
“My ex-husband is a real estate investor, so I’m extremely aware of the real estate market right now,” she said.
Huge demand
Numbers from the Lehigh Valley Planning Commission show that renters make up nearly 86,000, about 33%, of households in the Lehigh Valley. It’s a 7% increase since 2005 and a 2% increase between 2018 and 2019 alone.
Additionally, the rentals are in increasing demand because many are being shut out of home ownership with the dramatic rise in sales prices and difficulties in saving money or qualifying for mortgages. Younger adults primarily fall into that group and the 18-to-34 age demographic in the Lehigh Valley has grown by more than 10%.
Competition for single-family homes is fierce, too. The Greater Lehigh Valley Realtors reported an inventory of 486 homes in March, a drop of more than 27% from the previous year and an 87% drop from 2012.
Reilly, whose City Center has developed nearly 1,000 apartments in downtown Allentown, said the shortages are there in many types of housing.
“There’s significantly increased demand for housing, and the supply of housing isn’t keeping up,” Reilly said. “And I think that’s across all different housing types, first-time homebuyers or apartments or moving up to luxury. There’s a shortage across all these lines in the Lehigh Valley.”
One way society changed during the COVID pandemic was the ability of workers to do their jobs at home. Without the daily commute into a downtown, such as Manhattan, many were finding they could easily do their jobs from a desk at a larger apartment in the Lehigh Valley with a lower cost of living than a smaller, more expensive place closer to New York City. According to a CBRE survey, people from metro New York moving to the Valley increased by 13.7% in 2020.
“There’s definitely been some general migration during the pandemic,” Reilly said. “When you think about the Lehigh Valley, you look at our proximity particularly to the Metro New York market. A lot of people discovered the Lehigh Valley during the pandemic, because of people’s flexibility to work remotely. People moved to the Lehigh Valley and to get out of higher cost commuting situations.”
People became aware of a metro area 75 miles from Manhattan with much lower tax rates in terms of income tax and property taxes, than New York or New Jersey, that’s still convenient for those markets.
Jack Gross, a Realtor from Cassidon Property Management, Bethlehem, said the Valley’s location between several metropolitan areas makes it a desirable location.
“It’s a supply and demand issue,” Gross said. “There’s a lack of supply and increased demand. Why the increased demand? My opinion is based on the fact that we are geographically blessed between several metropolitan markets. There’s still people moving out of New York, northern New Jersey. Our values are still lower than their markets. So as long as we’re Walmart to them and a lot of people are working remotely — maybe they only have to go into the city once a week or once every other week. So they can keep their level of pay that they’re accustomed to and come here for a much better cost of living.”
Tepes said it’s not just younger people looking into the rental market. Many are older adults who may be looking to downsize.
“That’s everywhere that’s across the board,” Tepes said. “And I’m getting more and more elderly people, who just want to find a firstfloor apartment, they don’t want to go into assisted living yet, or nursing homes. You can’t find them.
“I have probably about four or five older couples that are looking for firstfloor apartments right now, which they can find or even ranch homes willing to rent that they can find. Then you have the people, who can’t find the house they are trying to rent and they can’t even find a place to rent, which is all driving up the prices obviously.”
Increasing the supply
According to LVPC numbers, the Valley’s rental market has grown consistently since the mid-2000s, adding an average of 460 new rental units annually. In 2020, there were 866 apartment units approved, which was nearly double the longterm average.
But simply adding new apartments is easier said than done. Besides the usual planning board hearings and permits needed for construction, the costs of building are also on the rise along with delays over supply chain and labor issues.
“Over the course of the last two years costs are up over 20% and now interest rates are starting to move higher,” said Reilly, who is closing in on finishing two more buildings in Allentown. “All of a sudden, when we’re looking at a project to build, our costs are 20% more than they were a couple of years ago. And our cost of capital now has gone up significantly, where we might have been able to borrow money at 3 ½ %or 4%. Now we’re going to be at 5%.
“So those two factors added a significant challenge to be able to bring a project 3½% in, you need an economical way, despite the fact that rents are higher, that certainly helps the financial model, but operating costs are higher as well.”
Gross added that even basic maintenance costs are on the rise and will factor into rents.
“The costs of being a landlord have gone up,” Gross said. “It used to cost me $900 for a hot water heater. Now it costs $1,500. It used to cost $225 for a window. Now it costs $350. Moving costs have gone up. It’s very hard. Supply chain issues have hurt us tremendously.”
Gross said that it’s also getting harder to convert older, single-family homes into apartments.
“A lot of the municipalities with their older housing stock, they don’t want you to convert into a multi-unit,” Gross said. “They want you to deconvert. The single family market is where it is right now. The regulations on doing subdivisions are very stringent. And it slows down the developers’ ability to add more housing stock in single family at least. But the cost of materials has gone insane. There’s more multi-unit housing being constructed than I’ve ever seen, because the demand is so high.”
Higher rents
Those higher costs are passed along to the tenant, which pushes the rents even higher.
The most recent rental data from LVPC shows 57% of the region’s apartments costing $1,000 or more per month, compared to 43% of units for previous years. About 25% of them are one-bedroom units, which is a decrease in share since 2015.
“Most of the new units being added are two- or three-bedroom apartments, which explains the overall increasing average monthly cost and a decline in the market-share of one-bedroom units,” the report said.
“You’ve had a renewed rental for like $1,500,” Tepes said. “Like maybe last year at this time, that rental and that market went to like $1,200. Now it’s $1,500. People come in and say I’ll give you $1,700. It’s kind of a little crazy at times.”
A joint study by Florida Atlantic University, Florida Gulf Coast University and the University of Alabama found that the Lehigh Valley is the 20th most overvalued rental market in the U.S., and the top one in the Northeast.
The study used past leasing data from Zillow’s Observed Rental Index to statistically model historic trends from 2014 and determine where rents should be and compare those to current rents. The difference between the two is the premium renters are paying. The higher the premium, the more overvalued a market is.
It found that the Valley’s average rate of $1,770 should be $1,578.25, a premium of more than 12%. The top five were from Florida, which saw an influx of out-of-state transplants during COVID with increased demand. The Miami region was No. 1 with an average rent of $2,832, for a premium of 21%.
“Higher rents will persist until inflation comes under control and we build enough units,” said Shelton Weeks from Alabama. “In the meantime, people will have to make hard choices.”
Despite the frustrations in the market, Gross said the worst thing for a potential tenant to do is call off the search.
“Don’t give up,” Gross said. “Our agents will come to me and say, well, this buyer is getting out of the market because they put out 10 offers they didn’t get any. I tell the agent to convince them to stay in the market and keep trying because what they think they’re overpaying for today, they might actually feel like they stole it two years from now.
“It’s the same thing with the renters. Don’t stop looking. Because what you’re paying today, a year from now, I can tell you it’s going up again. I know we have a recession coming and everything but the supply and demand is still way out of whack,” he said.