Vacancy rate
- Thread starter noodles
- Start date
3% has always been the magic number of a "balanced" market.
How do you work out that figure?
Yep most would consider 3% the tipping point. Personally I like to be buying in markets 2% and under to minimise risk of vacancy in the first few yrs. There are some markets worth considering even lower, like around 1%. That is when you know you will get healthy rent increases each year.
I will have a stab
Vacancy rate is a measure of the tension between landlords desire to increase rents (because people are greedy) and tenants desire to move out and find somewhere cheaper to live (because people are stingy). Around 2.5-3% the tension is roughly equal, meaning landlords can't raise rents much (perhaps by inflation but that is it) due to the risk that tenants leave and find alternate accommodation. Note that at this vacancy rate Landlords also do not have to reduce rents to compete for tenants. When vacancies rise above this rate, tenants have more choice, landlords compete with downward prices to keep tenants. Rents tend to fall.
When vacancies are below this figure, rents rise at well above inflation (subject to other economic factors like tenant income levels etc) because tenants have no option, but to pay more or risk being homeless as there are so few alternatives available in the market.
I did not work it out. It is just one of those oft-quoted statistics that has been around since the year dot.
As knightm has said, I prefer to buy in under 2% (many times 1%) vacancy areas. But it is seasonal too - it goes up over Winter typically as tenants tend not to like moving in the cold & wet.
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