(The Center Square) – The average monthly rent for an apartment in Denver decreased by $32 during the third quarter, resulting in an annual savings of $384, according to the Apartment Association of Metro Denver.
Rents decreasing $20 or more in a single quarter has happened only three times since 1981, according to Mark Williams, executive vice president of the organization.
“Rents are clearly flattening in Denver and throughout the country,” Williams said in a statement. “In the later months of 2022, economic factors – including more people moving out of Colorado – have impacted demand and will likely continue into 2023.”
Last November, the cost of renting a primary residence in Denver increased 12.9% compared to November 2021, according to the U.S. Bureau of Labor Statistics. That report showed November rent increased 3.4% since September and 1.5% since October. The overall inflation rate was 6.9% in November compared to November of 2021 as the cost of utilities, transportation, food and other consumer goods increased.
The Apartment Association report showed an increase in the vacancy rate as the fourth quarter average was 5.6%, the highest rate in nearly two years. The second quarter vacancy rate of 4.6% equates to approximately 4,000 additional apartments available compared to last summer. Fourth-quarter vacancy rates are typically the highest compared to the rest of the year, the report said.
Despite the number of apartments available, the organization said Denver must continue to focus on providing affordable housing.
“This quarter’s data shouldn’t take away from efforts to increase housing supply,” Drew Hamrick, senior vice president for government affairs and general counsel for the association, said in a statement. “The solution here is to continue to push for more housing. Rising vacancy has taken the pressure off rent growth, which slowed to only 6.5% over the past 12 months.”
An affordable housing ordinance in Denver is slowing the rental housing market’s growth, the association stated. After the ordinance took effect in July 2022, rental applications for new housing developments dropped 88.3% during the next quarter. It resulted in a loss of 11,337 future apartments in the Denver metro area, the association reported.
“The loss is exponential as those families will then drive up the rents in the existing inventory of rental housing,” the report said. “The solution to this is to continue to foster the development of new rental housing.”
The association’s data shows long-term demand for apartments will continue to be high, but the market is cooling. It predicted rents would remain flat at the beginning of 2023 as new housing units will be available. Approximately 40,000 new units are under construction and 20% to 30% will be available this year.
“The report shows 10,992 new apartments were added into the rental housing market in 2022, while only 6,933 additional apartments were occupied (absorbed) during 2022,” said Cary Bruteig, author of the Apartment Insights report. “This helped drive the increase in vacancy. More new units help drive the vacancy rate up which helps take pressure off rental rates. If vacancy rates continue to increase, and given the large construction pipeline they probably will, then rents are likely to either remain flat or continue to decrease.”