When people talk about real estate, one term that often comes up is vacancy rate. It’s a simple yet important concept that helps landlords, investors, and even tenants understand how well properties are being used.
Let’s explore how vacancy rates could affect your rental costs in 2024.
What is Vacancy Rate?
The vacancy rate is the percentage of all available rental or housing units that are empty or unoccupied at a given time. In simple terms, if you imagine an apartment building with 100 units, and 10 of them are empty, the vacancy rate is 10%. This rate can apply to any type of property, such as houses, apartments, or commercial spaces.
Vacancy rates are calculated using this formula:
Vacancy Rate = (Number of Vacant Units - Total Number of Units) × 100
Why Does Vacancy Rate Matter?
Vacancy rates are important because they tell us how well the rental or housing market is doing. A high vacancy rate might suggest that there are too many properties and not enough renters or buyers. On the other hand, a low vacancy rate means that most units are occupied, which could indicate high demand for housing in that area.
For landlords and property owners, vacancy rates are crucial because empty units mean less income. The lower the vacancy rate, the better it is for them since it means more tenants are paying rent. For renters and buyers, vacancy rates can influence prices. If there are a lot of empty units (high vacancy rate), landlords might lower rents to attract more tenants. If there are very few vacancies (low vacancy rate), rents might increase because of the higher demand.
Types of Vacancy Rates
There are two main types of vacancy rates:
Rental Vacancy Rate: This is the percentage of rental properties that are unoccupied at a given time.
Homeowner Vacancy Rate: This measures the percentage of homes that are for sale but are currently unoccupied.
In 2024, the rental vacancy rate in the United States was reported to be 6.6% in the second quarter, slightly higher than the previous year (6.3%) but stable compared to the first quarter of the year. On the other hand, the homeowner vacancy rate stood at 0.9%, a slight increase from 0.7% in 2023. This shows that while rental properties are more readily available, homeowner properties remain in demand.
Example to Understand Vacancy Rate
Let’s use a simple example to clarify how vacancy rate works. Imagine a neighborhood with 200 houses. Out of these, 10 houses are empty and up for rent or sale. To find the vacancy rate, you divide the number of empty houses by the total number of houses:
Vacancy Rate = (10 - 200) × 100 = 5%
So, the vacancy rate in this neighborhood would be 5%.
If more people start moving out and 20 houses become empty, the vacancy rate would increase:
Vacancy Rate = (20 - 200) × 100 = 10%
A higher vacancy rate might worry landlords because it could mean lower rental income. However, for renters, this might be good news since landlords might lower rent prices to fill the empty houses.
Vacancy Rate Trends in 2024
In 2024, vacancy rates have been influenced by several factors such as economic conditions, interest rates, and shifts in population. Some cities have seen significant changes in their vacancy rates.
For example:
Akron, Ohio, had one of the lowest rental vacancy rates in the U.S. at 0.8% in 2024, reflecting strong demand for housing
On the other hand, Memphis, Tennessee, reported a high rental vacancy rate of 17.4%, indicating an oversupply of rental units.
This variation across cities shows that vacancy rates depend on local conditions. Urban centers tend to have higher vacancy rates due to factors like higher rent prices and more competition, while suburban areas might see lower rates as more people seek affordable housing outside of big cities.
Factors Influencing Vacancy Rates
Several factors can cause vacancy rates to rise or fall:
Economic Conditions: When the economy is strong, more people can afford to rent or buy homes, leading to lower vacancy rates. During economic downturns, people might move back home or delay renting, which can increase vacancy rates.
Interest Rates: High interest rates can make it more expensive to buy homes, which can push more people into renting, reducing the rental vacancy rate.
Housing Supply: If a city builds a lot of new homes or apartments, it might take time to fill them all, leading to a temporary rise in vacancy rates. Conversely, a lack of new construction can lower vacancy rates as more people compete for fewer available units.
Impacts of Vacancy Rates on Rent Prices
There’s a close relationship between vacancy rates and rent prices. As a general rule, when vacancy rates are low, rent prices tend to go up because landlords have fewer empty units to fill. On the flip side, when vacancy rates are high, landlords might lower rents to attract tenants. In 2024, with a rental vacancy rate of 6.6%, rent prices have generally continued to rise, with the median asking rent for vacant units reaching $1,481 nationally.
Vacancy rates are a key indicator of how well the housing market is doing. They help landlords decide how to price their properties and give renters and buyers a sense of how much competition they might face when looking for a place to live. In 2024, vacancy rates remain stable in many parts of the country, but they vary widely by city, reflecting local economic conditions, housing supply, and other factors.
Whether you’re a landlord, a renter, or someone looking to buy a home, understanding vacancy rates can help you make better decisions in the real estate market.
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