New Hampshire’s rental market continues to be challenging for many residents, with fewer vacancies and rents that continue to increase. Data from this year’s Residential Rental Cost Survey, which surveys market-rate units across the state to gauge the condition of the rental market, showed the continuation of a long-term trend of a tightening rental market.
The majority of the state is experiencing vacancy rates below 4%, which constitutes a “landlord’s” market. Most industry experts consider an average vacancy rate of 4% to 5% a balanced market. Currently, only Coos shows a vacancy rate above 4%. Three counties – Belknap, Merrimack and Rockingham – show vacancy rates at below 2%. A rate this low is viewed as just turnover rather than true vacancies. The last time the state’s vacancy rate as a whole was above 5% and therefore considered a “renter’s” market was 1992.
The current low vacancy rates reflect a wider trend away from ownership and toward renting, which was examined in New Hampshire Housing’s 2014 study Housing Needs in New Hampshire. The study, which was performed by the New Hampshire Center for Public Policy Studies and Applied Economic Research, found that young households are holding off on homeownership due to student debt, limited wage growth and difficulties in obtaining financing. With the expectation that aging Boomers, who are currently opting to stay in their single family homes, will eventually downsize, low vacancy rates are expected to continue.
Renters are subsequently seeing an increase in prices. The state has seen almost a 10% increase in rents for two-bedroom apartments including utilities since 2010. More specifically, over the past five years, Grafton and Coos counties have seen a 15% increase, and Merrimack and Hillsborough counties have experienced 9.4% and 11.9% increases respectively. The effects of a tight market are especially evident in the state’s urban job centers, which are experiencing particularly high rents. For the first time, median rents for two-bedroom apartments topped $1,300 in Nashua and Portsmouth. Hillsborough and Rockingham counties as a whole are not far behind, with median rents for two-bedroom apartments at over $1,200.
The survey also demonstrates that renter household incomes are not keeping pace with the steady increase in rents. A renter would have to earn 124% of the median income, or over $46,000 a year, to be able to afford the statewide median cost of a typical two-bedroom apartment with utilities. Currently, in six of the state’s ten counties, less than 10% of the two-bedroom units in the survey were affordable to the median income renter household. Merrimack and Coos counties ranked the lowest with only 2% of two-bedroom units surveyed below an affordable rent. Grafton and Rockingham counties had the most with 26% and 24% respectively. Housing Needs in New Hampshire found that almost half of renters in the state pay more than 30 percent of their income on rent, and low-income families are particularly likely to be overpaying for their housing.
Another factor influencing these market dynamics is construction. According to Housing Needs in New Hampshire, 40 percent of the state’s housing stock is more than forty years old, meaning that new housing construction will be needed to replace aging units. Even though the market is starting to see some production of new rental units, the cost of land and construction forces these new units to enter the market at a high price point. The result is that building more rental housing is only one portion of the puzzle. Adding supply at the top of the market attracts the most affluent renter households, opening up vacancies in slightly less expensive units. This trickle down effect, while inefficient, eventually opens up units in the affordable end of the rental price range.
For more information about the 2015 Residential Rental Cost Survey or Housing Needs in New Hampshire, visit www.nhhfa.org.