Wednesday, October 3, 2012

Grand Junction Snapshot: Employment and Rental Housing

As a follow-up to yesterday's post on Grand Junction home prices and sales, here is a post on employment and rental housing.

Employment was still at 2007 levels during August 2012, but the employment situation is having less and less of an effect on the demand for rental housing as time goes on. Rents have stabilized in the region and vacancies are moving down. Continued demand for housing will continue as new building permits remain at 15-year lows this year.

The first graph shows the unemployment rate in Grand Junction over the past 18 years. Unemployment is still at the highest rates seen since the early 1990s. The unemployment rate during August, not seasonally adjusted, was 8.8 percent.

The unemployment rate is a function of both employment and total labor force size. As we can see in the second graph, total employment and labor force have been growing recently, which has prevented any large decline in the unemployment rate. Total employment is still approximately 6,500 jobs below peak levels. At its peak in October 2008, there were 81,000 jobs in the Grand Junction area, and as of August 2012, there were about 75,000 jobs. Even a return to peak levels may not bring down the unemployment rate to 5-6%, however, since jobs would need to be added above peak levels to accommodate new college and high-school graduates. At the current rate, another 24 months or so will be necessary to return to peak levels.(This is based on the Household Survey. The Establishment data shows total employment at 5,000 below peak levels.)

The third graph shows year-over-year changes in employment in the region. Interestingly, the region experienced almost uninterrupted job growth between 1995 and 2008. The job losses between 2008 and 2011, however, were very large.

In spite of the employment situation, apartment vacancies in the region are declining. A decline in the vacancy rate is often dependent on significant job growth, but in this case, the small amount of job growth that is occurring is enough to bring down the vacancy rate. This is partially due to limited supply, as very little multifamily supply has been added over the past several years. As expected, the vacancy rate moved up significantly following the job losses of 2008-2009, reaching 13.2 percent during the fourth quarter of 2009. The trend has clearly been downward since that time, however, and of the second quarter of this year, the vacancy rate had dropped to 5.5 percent. 
As the vacancy rate has declined, the average rent in the region has stabilized, showing some signs of growth. As the fifth graph shows, rent growth was solid from 2006 to early 2008 and only declined slightly thereafter. The average rent hit an all time high of $680 during the first quarter of 2009, and as of the second quarter of this year, the region's average rent was at $674, and remains near the all time high.

The year-over-year growth in the average rent has shown signs of establishing an upward trend in recent quarters. This year's second quarter's year-over-year change was 4.5 percent, which outpaces the official inflation rate and is also the largest growth rate since the fourth quarter of 2008 when rent growth hit 10.4 percent. Nevertheless, rent growth continues to be constrained by the fact that the GJ market is somewhat dominated by smaller owners who tend to raise rents at a slower pace than large corporate owners. This is due partially to the fact that small owners are more motivated to avoid turnover costs than larger owners.

The last graph shows one of the major reasons that apartment vacancies continue to decline in spite of an unemployment rate above 8 percent. There have been few units added to the market. Singe-family units are off 75 percent from peak levels seen during 2006 and multifamily units have been near zero for most months since 2008. Single-family unit production is at a 15-year low. (It is probably at a 20-year low, but census data on permits only goes back to 1996.) Although the region lost 10,000 jobs from 2008 to 2009, only 7,000 people left the labor force, even at the low point. The labor force is now only 3,000 people below peak levels, and this suggests that the surge in unemployment did not lead to a large exodus of permanent residents. Combining this reality with a lack of new unit production, we can conclude that the demand for rental housing will likely continue to grow as the population and labor force grows.