Economic development officials in Bloomington-Normal sometimes express frustration at their inability to gain consensus on the importance of addressing the housing shortage.
The skeptics' argument goes like this: If the housing shortage were all that serious, apartment rental vacancy rates would be minuscule, just like they were during the peak of the pandemic in 2021 and 2022, with 99% of apartments occupied. They're not.
Michael Kahwaji of Class Act Realty and Kurt Hoeferle, the president of Apartment Mart, said for the last year plus it's been about 95% for their companies. Hoeferle oversees about 1,500 units at various price points. Kahwaji declined a formal interview but largely agreed with Hoeferle’s positions.
Hoeferle said a 90-95% occupancy rate is about the sweet spot for the marketplace. Any lower and landlords start to sweat. Any higher and would-be renters have trouble finding space to put up their feet.
Hoeferle said vacancy rates tend to change slowly unless there is a significant community event such as a major employer bringing in external workers as happened a decade ago, or — yeah — a pandemic.
The Bloomington-Normal Economic Development Council has released data showing the big job creation in the Twin Cities in recent years is far larger than the 1,500-person increase in population. Other communities have added about 5,000 residents in that time, meaning those folks are spending money where they live, instead of in Bloomington-Normal. A lot of those jobs, the EDC said, are in the $50,000-70,000 salary range, perfect for young workers. Hoeferle said the rental traffic he sees does not show a shortage of units in that segment.
“We probably could track that a little bit more, but we do get new people coming in just graduating and renting and we’ve had a lot of availability for them with apartments with some amenities we have added to entice somebody that is just coming into the workforce,” said Hoeferle.
He said the vacancy rate is fairly steady across various rent tiers. He's not sure whether the price bracket most younger people occupy has changed over the years.
“Some of them are mid-tier. We have some buildings that are over 20 years old that we have remodeled and those are in that $800 range for a one-bedroom and then up into that $1,200 range for a two-bedroom," said Hoeferle.
The turnover rate for apartments is also not unusual, he noted. The reasons people say they're moving haven't changed since before the pandemic in topic or proportion.
“The moveout notices that we’ve seen were people buying houses or moving out of town, being transferred, different things like that,” said Hoeferle.
Homebuyers
Hoeferle said maybe 35-40% of departures are people buying a house.
Wait, what? Buying a house? With interest rates and the runup in property assessments causing mortgage payments on similar houses to double over the last four years? The very low inventory of homes for sale in Bloomington-Normal might lead you to believe those people buying those houses mostly aren't buying them in Bloomington-Normal. This might bolster the Economic Development Council point that the community is leaving its economic impact dollars on someone else's table and choking off its younger generation of residents.
Hoeferle is not sure you can draw that conclusion. He is seeing the age of renters creep up as lifestyles have changed and people delay the transition from renting to owning. That's a national trend.
He said it’s not necessarily true those folks would be buying houses in Bloomington-Normal if there were more houses for sale. He said it's not necessarily the capacity of the Bloomington-Normal community to house people that drives this.
“You see younger people today a little more mobile, a little more apt to have a job and not stay at it forever. I think that’s a big thing. They’re more apt to — ‘Hey I’m going to move to another place and I’m going to get another job,’” said Hoeferle.
The argument for building more apartments is this: It is difficult to build new houses. Mortgage payments are high because the cost to build is high, and interest rates are high. Younger workers are priced out of homes. To capture economic activity from the manufacturing jobs created in the last decade in the Twin Cities, there must be more apartments and more levels, for people to move up as their salaries grow.
Even though vacancy rates are at a good level — for the landlords — could the community have captured more of those younger workers who are in neighboring communities with a larger supply of rental units in the twin cities? Hoeferle doubts it. He said vacancy rates may not support the conclusion.
“I don’t think so. Just because if you track occupancy, we only hit that high in ‘21-‘22-‘23 for the first time in a long time, 20 years probably. It would be different if we were consistently at that 99%...if we had seen it for five years,” said Hoeferle.
Hoeferle said the pre-pandemic rental market wasn't so different than it is now, yet a significant part of the job growth in the community happened before the pandemic.
There are some new apartment complexes going up, despite the high cost to build. Hoeferle said that will impact the rental marketplace. It will encourage owners to improve the quality of the rest of the housing stock.
“Trying to get some granite countertops in your places, maybe redo your hallways. For instance, at Wingover, one of our apartment buildings in the Ponds apartments, we built some pickleball courts,” said Hoeferle.
The lived experience of Apartment Mart and Class Act Realty is not the only perspective. McLean County Regional Planning Commission data show the apartment vacancy rate in years before the pandemic was closer to 8% than the 5% Apartment Mart and Class Act experienced. Last year, the community average was 4%, which means the community as a whole is not back to pre-pandemic vacancy rates, and that at least some of the other property management companies have fewer vacant units than Class Act and Apartment Mart.
The Economic Development Council and Regional Planning Commission have also said the vacancy rate is not the only important measure to think about. Rent is another. Average rent per square foot has risen 46% in McLean County since 2019, which tends to squeeze young workers into smaller apartments that are less desirable as a long-term residence. The median salary has declined over the last several years, reflecting the increase in mid-tier jobs. And the disconnect between wages and rents affects who chooses to live in Bloomington-Normal and who does not.
The truth of the experience of apartment owners like Michael Kahwaji and Kurt Hoeferle may not match the entire community picture. It does show the difficulty the Economic Development Council and other advocates for more housing have in gaining community consensus.
