Declining Rental Vacancies Put Pressure on Eastern Idaho

While demand for rental units in eastern Idaho has steadily increased since the 2008 recession, supply has not kept pace.

Leading into 2008, rental vacancies were at an all-time high peaking at roughly 10.5 percent across the nation (Figure 1). Although more vacancies frustrate landlords who are unable to fill rentals, it creates a preferable – or buyer’s – market for consumers. Before the recession there were abundant rental options, competitive prices and space for populations to expand.

Whenever the economy takes an economic downturn, especially a severe instance like 2008, there is a stagnation in construction. Rental property construction took a huge hit during this time and almost stopped completely. At the same time many people were losing their homes and being forced into rental units. Within the first few months of 2008, rental units became a hot commodity and, as shown in Figure 1, rental vacancies drastically declined.

The U.S. economy began to recover a couple years post-recession; however, rental housing construction took several additional years to begin recovering. And now, even as the economy is recuperating, those people who would have naturally moved out of rentals and into homes did not. These renters were prevented from purchasing homes for a variety of reasons, such as tougher lending standards, decreased household formation, reduced incomes, unemployment and job insecurities mostly brought about by the recession.

As the economy has recovered, most of the barriers to home buying that were present early on after the recession have been overcome. Lending standards and job insecurities have relaxed while unemployment has dropped and incomes are upward bound. However, availability of rental housing is still low. In 2016, the United States rental vacancy rate was 6.8 percent – still down almost 4 percent from pre-recession rates – and the West has the lowest vacancy rate in the nation at 4.4 percent (Figure 2).

The eastern Idaho population has grown by almost 15,000 since 2008 yet there have been few additional rental properties built in the region. Supply of rental units has stagnated, but demand for these units has grown exponentially. According to economic theory, as demand increases for a product without a change in supply, the price for the product increase. This theory is unfolding in the region today.

A survey taken of 10 apartment complexes representing more than 4,000 units in the Idaho Falls / Ammon area showed that all increased rental rates at least once in the last year with some increasing rates three or four times. This survey also exposed the high demand for new rental options, but only one complex was expanding and had rented nearly 77 percent of the units before construction was completed.

As demand continues to outweigh supply, prices will continue to rise. The side effects are evident as higher rental cost is eating into savings meant for down payments on homes, thus residents are staying in rental units longer than anticipated. Spending more money on rent also means residents have less disposable income to spend in their local economy. If the supply does not quickly catch up to eastern Idaho’s high rental demand, this rising rental price trend will continue.

As eastern Idaho continues to market toward expanding its population and retaining its natives, potential renters will hit a bottleneck and in-migration due to relocation may be dissuaded if the rental supply does not increase. If the goal is to obtain more consumers and increased workforce in the region, consumers require greater rental supply and competitive pricing. Having these amenities will only help to attract a talent pool to eastern Idaho., regional economist
Idaho Department of Labor
(208) 525-7268 ext. 4340