I often talk about housing affordability, interest rates and the local real estate market. I would like to switch gears and address some questions about the residential rental market.

The surge in local apartment or multifamily construction has many of us wondering how much construction is too much. And how much will these buildings charge for rent with the relatively recent surge in supply?

For context, Colorado is the eighth-most-expensive state to rent a two-bedroom apartment. A renter needs to make $32 an hour to afford a two-bedroom, although the average renter makes $25 an hour.

A renter who makes the Colorado minimum wage of $13.65 an hour would need to work 94 hours a week to rent the average two-bedroom apartment. In El Paso County, the average renter would need to make $29 per hour to afford an average two-bedroom apartment, but the average renter makes $21 per hour.

Clearly, our state and city have become prohibitively expensive for renters, which I worry about, because these are typically our younger workers whom we desperately need. I also worry that Colorado Springs’ high rental rates will begin to detract workers from moving here, which is much of what has happened in the greater Denver area. That’s the demand side.

On the supply side, multifamily construction has exploded during the pandemic period.

Our region has about 12,000 units under construction, meaning that about 4,000 units will be available for lease in each of the next three years as projects complete construction. In the past, only about 2,000 units have been absorbed in our market, or roughly half of what will come available.

Already, according to the U.S. Department of Housing and Urban Development, our current vacancy rate is at 13.6%, which is about three times what it was before the surge in building. Our local multifamily market is now categorized as “soft.”

This means that a lot of apartment-leasing offices should be offering renters concessions such as lower security deposits or a month’s free rent, as examples. And if one leasing company offers a good discount or other concession, but you like another complex better, a renter should now have some leverage to negotiate.

Similarly, for those who were in the market to buy a single-family home before interest rates shot up in early 2022, and now feel they cannot afford a home due to the higher 30-year mortgage rate, they should think again. Most builders are offering mortgage buydowns, where a builder pays some of the higher interest rate for a fixed time period as well as other pricing concessions.

These potential buyers could take advantage of those concessions, get a shorter-term mortgage now, and refinance when interest rates come down likely in mid-2024. I don’t think we will see the 3% 30-year mortgage rates of the past anytime in the foreseeable future, but getting a 30-year rate at roughly 5.5% may be in the cards in 2025. By historical standards, that’s not a bad deal if you consider that the average 30-year mortgage rate has been 7.74% since 1971.

So, although we have a longer-term housing shortage that will keep prices from falling substantially, both renters and buyers do have some wiggle room right now. That’s something to be thankful for.

Tatiana Bailey is executive director of the nonprofit, Data-Driven Economic Strategies; ddestrategies.org

Tatiana Bailey

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