Federal housing analysis says Champaign rental market oversaturated, but city continues to approve development

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Darrell Hoemann/CU-CitizenAccess.org

An aerial photo of Green Street looking west from the Fourth Street intersection on April 23.

The development of student apartments in Champaign-Urbana has not slowed down over the past five years, despite two separate federal housing analyses describing the rental market as oversaturated.

“During December 2016, the estimated student-targeted apartment vacancy rate was 12.9 percent, up from 7.4 percent a year earlier” a federal 2017 Comprehensive Housing Market Analysis reported in January.

But Ben LeRoy, an associate planner for the Champaign planning and development department, said that the city’s policy on student apartments is influenced more by the developers on campus and less by sources such as the U.S. Department of Housing and Urban Development, which produced the January 2017 report.

“For many years, we’ve taken an approach that it is not really the role of our city government to be making supply and demand choices for the market,” LeRoy said. “We’re not really looking to a data driven approach to guiding our policy. It’s more recognizing from our local development community.”

Comprehensive Housing Market Analyses are prepared by HUD for cities across the country. These reports have been made available for Champaign-Urbana twice in the last five years and are developed by economists to provide data and information about local housing conditions and trends.

HUD Public Affairs Specialist Gina Rodriguez said the primary purpose of Comprehensive Housing Market Analyses are “to inform the public of results of our analysis of housing markets and to let them know how much demand there is for market sales.”

 

In 2012, ‘no additional units should be constructed’

In 2012, HUD reported that the housing market was soft and that the current overall vacancy rate was estimated to be at “9.1 percent, with around 300 rental units under construction at the time.”

A soft housing market is one in which there are more potential sellers than buyers. Soft markets are also referred to as “buyer’s markets” because the purchasers hold the power in negotiations.

The 2012 HUD analysis also presented a three-year forecast that “no additional units should be constructed to allow for the absorption of the current excess supply.”

But despite this federal report calling for a slow-down in development of rental units, building permits for major apartment complexes such as Latitude and HERE were both approved. These complexes would add 604 and 528 beds, respectively.

HERE was approved in May of 2013 and Latitude in May of 2014. Both of these dates are after the April 2012 publication of the 2012 HUD Analysis.

 

Champaign: Developers have best knowledge

LeRoy said the City of Champaign views the developers, “as having the best knowledge about whether there’s an over supply, an over supply of one type of student housing, an under supply and what prices should be.”

Prominent local developers IPA Development, American Campus Communities and CA Ventures all did not respond to repeated requests for comment.

Minneapolis-based Opus Development Co., which announced plans to construct a new 14-story apartment building at Fourth and John streets, also did not respond to repeated requests for comment. But Ben Angelo, senior director at Opus, told The News-Gazette that steady enrollment and other investors led Opus to invest.

But not only does the city believe that the developers have the best knowledge about market conditions, this knowledge is what forms the policy and zoning ordinances. LeRoy said that the city asks the developers what constraints local ordinances place on them, and they go from there.

The developers also may have been influenced the City of Champaign to report that there was a demand for student housing in a 2014-2015 Planning and Development Annual Report.

This report stated changes in “a new ‘University Neighborhood’” where “developers can continue to meet the housing demand generated by continued increases in the University of Illinois’ enrollment.”

But the 2017 CHMA reported that “UIUC enrollment has only increased by approximately 2,000 students since 2012.” And despite this fact, “an estimated 4,600 beds have been added to the market” since 2012 as well. Overall, 60 percent of apartments constructed since 2010 have been aimed at students, the analysis reported

The report found that the average rent per bedroom in a student-targeted apartment was $579 in December 2016.

“The current average rent in a two-bedroom student targeted apartment is approximately 45 percent higher than a two-bedroom non-student-targeted apartment,” the report said.

 

University enrollment hasn’t increased much, but plans in the works

Additionally, the 2012 CHMA forecast that “enrollment at UIUC is expected to remain stable during the next 3 years.” This paired with data from the University of Illinois Student Enrollment Databases by the Division of Management Information shows only a 689 student enrollment increase from 2013 to 2015.

Enrollment did not increasing by an amount significant enough to fill the 4,600 added beds that HUD reported. Additionally, no announcements had been for plans to increase enrollment had been made until January 2017.

According to Tom Hardy, spokesperson for University of Illinois President Tim Killeen, “President Killeen is the first in the last 15-20 years to announce a strategic plan to grow enrollment across the system by 15 percent in a 5-year period.”

But the vacancy rates for student-targeted apartments that were reported in the 2017 report appear to reflect what happened as a result of an increase in units disproportionate to the number of students enrolled.

“We put out resources and hope they are utilized to help make good decisions and that they take advantage of the information to determine where areas of need may be,” Rodriguez of HUD said.