Kokomo Tribune; Kokomo, Indiana

August 28, 2013

Rental market worries

Landlords wonder if Kokomo can support higher rents

By Scott Smith Kokomo Tribune
Kokomo Tribune

---- — When someone says the Kokomo housing market is “affordable,” that’s not always a good thing.

It’s a positive for median income homebuyers, who can afford a higher percentage of the homes for sale than in almost any other market in the nation.

But it’s less of a positive for home sellers and for landlords, who haven’t been able to raise rents for years.

The affordability tag is also a reflection of the city’s aging housing stock. With doubtful return on private real estate investment, there hasn’t been much of anything built for the past five years.

And in the years leading up to the 2008 collapse, most of the new apartment construction was subsidized through federal tax credits, adding a further layer of control on rents.

Local property manager Chris Mullinax of CRM Properties, said the rental market suffers from a basic lack of higher-end units.

He recently rented out a three-bedroom home near the Chippendale subdivision for $1,600 a month, and said three families were vying for it the day it went on the market.

“But the next level we have is probably something similar to what you’d see in Indian Heights, down around the $700 a month range,” Mullinax said. “There’s a market for higher-priced rentals, based on calls we get for nicer properties.”

That’s what an Ohio firm is banking on.

Developers Redwood Management are proposing to build 100 “luxury” rental units on a 36-acre parcel on Kokomo’s southwest side.

It’s a prime area, where $300,000 homes alternate with undeveloped, golf course-frontage lots. The parcel Redwood wants was once slated for an expansion of the Wildcat Creek golf course.

The big question is whether the project can command the rent level publicly quoted by their real estate broker.

Chris White of Site Solutions Inc., Carmel, told the Kokomo Common Council last month that Redwood has been getting anywhere from 90 cents to $1.10 a square foot for its style of two-bedroom, two-car garage, two-bath rentals. The company has built more than 2,000 units so far, mainly in suburban areas of Ohio.

That equates to a rent of between $900 and $1,200 a month, which is far beyond what any Kokomo apartment complexes are presently charging for a two-bedroom unit, said George Tikijian, head of Indianapolis real estate research firm Tikijian Associates.

Right now, Tikijian said, the average rent for a two-bedroom, two-bath rental in Kokomo is 68 cents a square foot.

The highest rent Tikijian found among 21 properties surveyed in Kokomo was the Legends of Wildcat Creek, at 71 cents a square foot. That’s about $750 a month in rent.

Redwood, White said, is targeting empty nesters who might have the resources to afford a nicer rental.

“The population is aging, and [Redwood] thinks there’s a niche. I think it’s a good idea, but I just don’t know how you support those rent levels in Kokomo,” he said.

Redwood officials didn’t respond to interview requests, but marketing materials they provided to the Kokomo-Howard County Plan Commission show they’ve been building in much more affluent communities than Kokomo.

Kokomo city officials have suggested that some higher income individuals might move here if there were higher quality rentals available, but Tikijian is skeptical.

“If you build it, they will come? That’s pretty risky,” Tikijian said. “Lenders don’t like to take those kinds of risks.”

Mullinax worked on a recent project to rehabilitate a Kokomo apartment complex and said the owner was faced with a dilemma.

Was it better to make basic upgrades and keep rents the same, or should the owner spend more on upgrades in hopes of increasing rents?

“Most investors are coming to the conclusion they’d rather keep prices average, and more affordable,” Mullinax said.

Kokomo’s demographics make it hard to justify pushing the boundaries of rent prices.

Median household income in Howard County ranked 74th among Indiana’s 92 counties in 2011, and the poverty rate is higher than state and national averages.

Census figures show that nationally, just under 38 percent of all renters are paying less than $750 a month in rent. In Kokomo, that number is almost double.

And even with rents much lower than the national average, many Kokomoans still can’t afford their rents.

More than half of Kokomo renters were paying more than 35 percent of their income in rent in 2011, a figure above both the state and national averages.

That might be why, despite the shortage of available rentals, landlords in Kokomo still have a hard time raising rents, even when rental vacancy rates are approaching historic lows.

“I think we’ll look back and say 2012 was a peak year for the rental market in Kokomo,” Tikijian said. “Vacancy rates are very low, it was before the single-family home market had increased very much, and there wasn’t much new apartment construction from 2005 to 2011.”

Scott Smith can be reached at 765-454-8569 or at scott.smith@kokomotribune.com