When new development occurs in Carrboro, many people ask “how many of the new residential units are going to be affordable?” While this is a good question to ask, the new units in any project are inevitably a small portion of the overall housing stock in the town.
The more important question is “how many of the EXISTING units are becoming more or less affordable?”
New Development = Small Portion of the Housing Supply
The 2012 American Community Survey reported that Carrboro had 9,347 housing units. A recently approved project on North Greensboro Street, Shelton Station, will add 96 units to the town’s supply of housing, which is barely over 1% of units. The debate over a single project’s affordability can make it seem like the prices of the other 99% are affordable, or at least have prices that are holding steady. This is not the case.
Landlords Respond to Rent Conditions and Trends
I’ll let Chris Bradford, the eloquent blogger behind Austin Contrarian, explain this part:
When property values rise, low-quality housing “filters up” to the high-quality housing sub-market. The reason is that rising rents encourage landlords to invest more in the property. When property values fall, high-quality housing “filters down” to the low-quality housing sub-market. The reason is that falling rents encourage landlords to invest less in property. The key in either case is that old housing costs more to maintain than new housing.
Every landlord with an old property confronts the same decision: Should I spend the money to keep the property in top shape, or should I let it go?
Keeping the property in top shape allows the landlord to charge more rent. But it also costs the landlord more in maintenance and periodic renovation, especially for old apartments. What the landlord decides to do depends on the current market, his estimate of future demand, and about a million other things. But we know one thing for sure: A landlord is less likely to maintain an apartment in tip-top shape when the rent for tip-top apartments is falling. Declining rents mean a declining return on the maintenance investment. That spells less investment .
Without constant maintenance, apartments deteriorate from “tip top” to “slightly dilapidated.” Renters, sensible people that they are, are not willing to pay as much for bad quality. Rents fall, and the apartments “filter down” into the pool of affordable housing.
Filtering Moves Units From One Housing Submarket to Another
In another one of Bradford’s posts on filtering, he goes on:
People understand that a tight housing market leads landlords to raise rents. What they often don’t seem to understand is that a tight housing market also causes some landlords to invest more money in their properties in order move them into a more expensive submarket. That’s how a shortage of units in the $1,200/month submarket (for example) can hurt someone shopping in the $800/month submarket.
This is a key point about “filtering up.” If there’s a demand for higher-end units in a market that is not being met, middle-market landlords who realize this are likely to invest in their properties and re-position them as higher-end units. This often comes in the form of fresh paint, premium kitchen appliances and countertops, and other modest-cost improvements such as better light fixtures and new carpets. Once these conversions take place, the landlords will then start charging higher-end market rent for their unit, and simultaneously shorten the supply of mid-market apartments by one unit.
Bradford touches briefly on “filtering down,” and makes a good point:
Filtering down happens too, of course. It’s just that no one sends a press release to the Austin Business Journal when they decide to cut back on maintenance and allow their property to slip in to a cheaper submarket.
What’s The Most Prominent Example of Filtering In Carrboro?
One particular property in town has had a place in the spotlight as it has gone through filtering changes in the last few years: Collins Crossing, formerly known as Abbey Court. While the story cannot be completely told using news clips, the following quotes suggest that Abbey Court was “filtering down” through neglect from the middle of the past decade to the time of its sale to Aspen Square Management, and the new management firm has been renovating units, repositioning the property as a student-centric location, and “filtering up” to a higher-rent submarket ever since. Units that once rented in the mid-$500 range a few years ago now rent for more than $900 after the renovations.
June 2012: Abbey Court Sold [emphasis added]
While Blau acknowledges that renovations to the condominium complex are desperately needed to bring things up to code – citing buildings that are unsafe and stairways that are falling apart – because a large percentage of the residents who live in the condominium complex are immigrants, she is concerned that renovations could price them out of the complex.
January 2013: Abbey Court child falls through staircase [emphasis added]
A 10-year-old boy tumbled through a deteriorated stairway at the complex on Nov. 24, three days after Collins Crossing owners notified condo owners of their plan to impose assessment fees.
Carrboro officials gave owners 90 days to make repairs. In the meantime, condo owners have to find the cash within three weeks. It’s unclear what penalty tenants will face if they don’t pay, although Carrboro Mayor Mark Chilton says management could impose a lien on the condos. Some residents fear foreclosure.
I moved in right before school started last fall. The landscaping is great and the renovated apartments are awesome. I have so much room/closet space, other then having a tiny sink, the bathroom is perfect. The staff is always more then accommodating, they are some of the nicest women ever. The prices are going up but still quite affordable and the best part is that you can have separate leases. I would definitely recommend this place.
The UNC is our fully renovated 2 bedroom 2 bathroom apartment. It is an ideal floor plan for roommates within biking distance to UNC. It also features a full sized stackable washer and dryer.Starting at $979.
Housing Markets Are Dynamic, And Don’t Require New Development to Experience Price Changes in Submarkets
Carrboro has not seen significant new residential construction over the last several years, and Abbey Court/Collins Crossing is a good case study of how real estate market conditions, independent of the presence or absence of new development- drive how properties can become less affordable.
While the change from Abbey Court to Collins Crossing received significant coverage in the media, in part due to the size of the complex, this is not the only part of town that is filtering up.
Next Tuesday’s post will cover another key location where filtering is presently going on in Carrboro. Have a guess about which part of town it is? Leave it in the comments, and check back on February 24th to see if you got it right.