HousingLink Blog

  • The Shrinking Shadow Market

    by User Not Found | Apr 18, 2013

    A trend we have our eyes on is the shrinking shadow market. Since we started tracking Twin Cities rental market data in 2011, the shadow market consistently made up 60% or more of twin cities rental listings. However, the last two quarters it has made up 55% and 52%. Possible explanations to this trend are the improving real estate market, with more people opting to sell their homes than rent them out, or the fact that shadow market rentals turn over less frequently than apartments.

    A recent national survey of renters (single family and multi-family) by Premier Property Management out of Memphis, TN showed some interesting findings. For example:

    - 52% of all rental units in the U.S. are single-family homes, housing 27% of renters.
    - Most, 3.6 million, were originally built for owner occupancy, but became rental when their owners lost them to foreclosure.
    - Single family home tenants are 25% more likely than apartment tenants to stay in their current home five years or longer.

    See the entire survey results here.

  • Twin Cities Rents Remain Strong Overall

    by User Not Found | Jan 24, 2013
    The fourth quarter of 2012 showed the continuation of a strong rent growth in the Twin Cities apartment and shadow markets. One bedroom units in the apartment market were up 10% from the previous year, with a median rent of $790. Two bedrooms rose 8% to $960, and three bedrooms climbed 5% to $1,250. In the shadow market one bedroom units rose 3% to $835, two bedrooms grew 5% to $1,100, and three bedrooms nudged 1% higher to $1,300.

    In the past two quarters in this report, we have started to see an interesting development with three bedroom apartments in the suburbs. In a number of cases rents are declining year-over-year (many times by 10% or more!) when the median rent for a three bedroom apartment a year ago was higher than a three bedroom shadow market rental in the same region. Examples of this trend in this quarters report:

    Inver Grove Heights/Mendota/Lilydale
    New Hope

    Last quarter it happened in:

    Eden Prairie
    Inver Grove Heights/Mendota/Lilydale

    The result of the declining apartment rents are that in most cases the rents are “corrected” to the place where three bedroom apartments are less than three bedroom shadow market units.

    This trend may also present an opportunity for apartment owners and managers of three bedrooms throughout the Twin Cities suburbs. There were a number of regions where three bedroom apartments a year ago were renting significantly lower than three bedroom shadow market rentals. This allowed for substantial rent increases. Examples of this trend in this quarter's Twin Cities Rental Revue:

    Bloomington (up 17.6%)
    Chaska (up 15%)
    Coon Rapids (up 6.7%)
    Fridley/Columbia Heights (up 9.2%)
    Hopkins (up 17.4/%)
    Minnetonka (up 16.3%)
    Roseville (up 19%),

    This demonstrates the importance of tracking shadow market rents to help determine whether or not you can expect or plan for rent decreases or increases in specific regions. For those not currently subscribing to Twin Cities Rental Revue, go here for more information so you aren't missing out on this vital rental market data, or email jdye@housinglink.org.
  • Shadow Market Pressure Impacts Apartment Rents in Twin Cities Suburbs

    by User Not Found | Oct 16, 2012
    Year-over-year rent growth in the apartment and shadow markets was unimpressive when looking at the Twin Cities as a whole.

    In the apartment market:

    One bedrooms remained flat ($711)
    Two bedrooms were up 1% ($900)
    Three bedrooms jumped 5% ($1,260)

    In the shadow market:

    One bedrooms rose 6% ($850)
    Two bedrooms rose 2% ($1,125)
    Three bedrooms rose 2% ($1,325)

    Things get much more compelling when you look at individual areas. Consider southwest Minneapolis apartment rents:

    Two bedrooms were up 36% over the previous year! ($1,350 compared to $995) Three bedrooms were up 11% ($1,500 compared to $1,350)

    To put that in perspective, over the course of a year, the median rent for a two bedroom apartment in Southwest Minneapolis went as high as the median rent for a three bedroom just one year earlier. Wow.

    While apartments remained strong throughout Minneapolis and St. Paul, rents declined in many suburbs. This was likely due to shadow market pressure. Consider Plymouth: Two bedroom apartments in 2011 Q3 were $1,117, but dropped  11% to $995 by Q3 2012. Three bedroom apartments in Plymouth had a similar story. In 2011 Q3 they were $1,600. In 2012 Q4? A 15% drop to $1,358. How did that happen in this rental boom? It is likely the impact of the Shadow Market.

    For the past year, Shadow market (largely single family homes and townhomes) three bedroom rentals in Plymouth hovered around $1,600. With a greater number of shadow market openings to choose from among both two and three bedrooms in Plymouth, apartment rents couldn't keep pace with the single family home, townhome, and condo rentals (and inventory) in Plymouth.

    Similar stories played out in other suburbs (particularly with three bedroom rentals) like Eagan, Eden Prairie, Edina, Hopkins, Inver Grove Heights, Lakeville, Maplewood, Minnetonka, St Louis Park (two bedroom rents impacted in this case), Wayzata, Mound, and Woodbury. In each of these areas the shadow market appeared to put a ceiling on apartment rents, causing year-over-year declines.

    This shows the importance of gaining insight into shadow market rentals in the areas where you have properties. Thanks for subscribing to the MADACS award winning Twin Cities Rental Revue!

  • Apartment Rents Close the Gap

    by User Not Found | Jul 23, 2012
    What a difference three quarters makes! When we first started collecting this data, shadow market rents significantly outpaced apartments. This wasn't a surprise because it made logical sense to most that a renter is willing to pay more for a 3 bedroom single-family home than a 3 bedroom apartment. However, that logic may no longer matter in this hot rental market! Consider this:

    One Bedroom Units

    In 2011 Q3, the median rent for a shadow market 1 bedroom was $91 higher than an apartment ($800 vs. $709).

    In 2012 Q2,  the median rent for a shadow market 1 bedroom was $5 less than an apartment ($775 vs. $780).

    Two Bedroom Units

    In 2011 Q3, the median rent for a shadow market 2 bedroom was $204 higher than an apartment ($1,099 vs. $895).

    In 2012 Q2, the median rent for a shadow market 2 bedroom was $100 higher than an apartment ($1075 vs. $975).

    Three Bedroom Units

    In 2011 Q3, the median rent for a shadow market 3 bedroom was $100 higher than an apartment ($1,300 vs. $1,200).

    In 2012 Q2, the median rent for a shadow market 3 bedroom was $5 higher than an apartment ($1, 300 vs. $1,295).

    Interesting Trends Worth Noting:

    1. Shadow market rents have gone down or remained flat over the past three quarters.

    2. Apartment rents continue to climb:

    • 1 Bedrooms up 10%
    • 2 Bedrooms up 9%
    • 3 Bedrooms up 8%

    Why are Shadow Market Rents Flat or Down?
    The first place we looked for an answer within the data was in building type. Were there fewer single-family home rentals and more townhomes and duplexes that caused the rents to remain flat? No. Single family homes made up 28% of the rental market in 2011 Q3, and 27% in 2012 Q2.

    The second place we looked was in total number of listings advertised. Two and three bedrooms had a similar number of listings in 2011 Q3 and 2012 Q2. One bedrooms had about 600 more in 2012 Q2. It is possible that increased competition has suppressed one bedroom rents in the shadow market. Something else is likely in play as well.

    The motivations of many shadow market landlords are different. Their concerns are more about covering the mortgage than increasing profit. This particularly comes into play at lease renewal. A shadow market landlord may lack the capacity (and cash flow!) to raise the rent, find a new renter, cover turnover costs, etc. As a result, rents remain flat, while the professional operators of apartment communities have the capacity to raise rents, turnover units, and maximize cash flow in this hot rental market.

    What are your thoughts? Write a comment below!
  • Apartment Rents Surge & the Shadow Market Contracts (but not for long)

    by User Not Found | Apr 17, 2012

    The 2012 Q1 Twin Cities Rental Revue just came out and there are some market changes worth noting. Apartment rents continue to increase as one bedrooms rose to $750, marking a 9% jump since Q2 of 2011. Two bedroom apartments increased to $925 and were also up 9% since 2011 Q2. Overall there were 700 more apartment units available to rent in Q1 compared to the previous quarter. This is likely a seasonal impact, as there were 800 fewer openings in Q1 compared to 2011 Q3.


    The Shadow Market is compelling right now. Rents were either down or flat across the board in Q1 of 2012 compared to the previous quarter. Most interesting is that there were 1,800 fewer units available compared to Q4 and 3,100 fewer than Q3. Also, for the first time since we started tracking this data we saw the Shadow Market compose fewer than 60% of openings listed. In Q1 Shadow Market units made up 57% of all open listings. It is still significant but trending downward...for now.


    Check out this article in the Huffington Post: Turning Foreclosed Homes Into Rentals Could be $100 Billion Industry This Year

    Bank of America is running a pilot program called Mortgage to Lease to rent homes to families that have been foreclosed on. Bank of America also recently announced a bulk offering of 500 foreclosed homes in six different states (none in Minnesota). In addition, private equity firms and hedge funds are spending hundreds of millions of investment dollars to buy up foreclosed properties. Don't forget about Fannie Mae and Freddie Mac! They recently put up 2,500 of the 200,000 foreclosed homes it currently owns for sale.


    It is hard to tell when this activity will hit the Twin Cities, but it seems inevitable. We will continue to track the trends in Twin Cities Rental Revue and keep you posted.



  • How much does the Shadow Market impact Apartment rents?

    by User Not Found | Feb 06, 2012

    The Star Tribune recently reported on the thriving multifamily sector.  You likely know that apartment vacancy in the Twin Cities is low (2.3% in Q3 of 2011) and rents are rising.

    However, the article noted that even though demand is booming, rents are only slowly rising. What role does the shadow rental market (condos, duplexes, houses, town homes) have in slowing apartment rent increases?

    Is it that in bad times the shadow market eats into apartment occupancy and in good times prevents a more rapid rise in apartment rents? Let's dig into the data of Twin Cities Rental Revue:

    In Q3 and Q4 of 2011 the Shadow Market made up 62% and 65% of openings listed in the Twin Cities.

    What does this mean? Though openings are slim in apartments, renters still have plenty of other alternatives in the shadow market. These alternatives may act as a weight on rent increases in apartments, preventing them from rising as fast or as much, even in a strong rental market.

    Twin Cities apartment rent increases from Q2 - Q4 of 2011 (Median Rents)

    0 BR - No Change ($580 to $580)

    1 BR - Up 4% ($690 to $720)

    2 BR - Up 4% ($850 to $885)

    3 BR - Up 4% ($1,142 to $1,190)

    4+ BR - Up 8% ($1,195 to $1,297)

    Twin Cities shadow market rent increases/decreases from Q2 - Q4 of 2011 (Median Rents)

    0 BR - Up 16% ($585 to $695)

    1 BR - Up 2%   ($795 to $813)

    2 BR - Up 2%   ($1,025 to $1,050)

    3 BR - Down .7% ($1,295 to $1,285)

    4+ BR - Up 4%  ($1,525 to $1,590) 

    The primary floor plans where the shadow market competes with the apartment market are 1, 2, & 3 bedrooms. It is interesting to note that shadow market rent increases for 1 & 2 bedrooms were smaller than the apartment market (2% compared to 4%) and there was a slight rent decrease in shadow market 3 bedrooms.

    What do you think? Is the shadow market contributing to slower rent increases in the apartment market?



  • The scope of the Shadow Market (condos, duplexes, houses, townhomes)

    by User Not Found | Nov 23, 2011

    The scope of the shadow rental market of condos, duplexes, houses, and townhomes was largely a mystery until now. The quarter three Twin Cities Rental Revue provided unique insight into shadow market activity.

    Would you have guessed that only 38%% of listed openings in the Twin Cities were apartments and 62% were shadow market? Here is the breakdown of Q3 openings by building type:

    • Apartments - 38%
    • Single Family - 28%
    • Townhomes - 15%
    • Duplexes - 12%
    • Condos - 6%

    These numbers indicate that the shadow market is a force in rental housing, and  raises the question about the true availability of rental housing in this market. News stories indicate that vacancy is declining, but those numbers don't account for shadow market units. It will be interesting to track the number of shadow market openings over time.