The housing market has been slow to recover, but in Madison, a recent construction boom of apartments could signal a different kind of comeback
It's construction season.
Have you taken a peek at the skyline lately? The crane count in Madison, especially in the downtown area, has been ratcheting up over the past eighteen months, with many of them dedicated to the creation of luxury high-rise apartments. Think the Constellation on East Washington Avenue, Seven27 on Monona Bay and the forthcoming Ovation 309 on West Johnson. These new buildings are generally targeted at young professionals who are willing to spend a bit more money on an upscale apartment but not quite ready to leap into homeownership, or for Boomers who don’t want the hassle of a house and desire easy access to downtown amenities. You’d think all this new development would cause vacancy rates to go up, but au contraire. According to Madison Gas & Electric’s tally, vacancy rates remain low—less than two percent in the city’s downtown 53703 ZIP code. And while local investors and developers have attributed the growing supply of downtown apartments to demand from Epic employees and the city’s growing technology sector, Madison’s apartment boom is part of a greater national shift away from owning and toward renting. Economists cite a number of factors—from transient lifestyles to rising student debt to difficulty obtaining a mortgage—as contributing to the recent trend.
Housing Haves and Have Nots
The buzz in the housing market may be surrounding apartments and renting, but what’s going on with home sales? In May, the federal Department of Housing and Urban Development released some pretty sour figures for new home sales, with this March’s sales down more than thirteen percent year-over-year. That’s the worst it’s been since April 2011. Statewide, it’s a similar story. The Wisconsin Realtors Association reported that March saw home sales in the state drop for the third straight month, and compared to last March, home sales were down 11.3 percent.
But here’s the rub: In both Wisconsin and on the national scale, housing sales are down, but the median price is rising. And not just rising—record-breaking. The median price of a home in the U.S. reached $290,000 in March, the highest ever and an eleven percent jump from the month prior. In Wisconsin, the median home sale price is significantly lower at $136,500, but it’s still up almost two percent from a year ago.
One reason: luxury home sales, which have been selling more than moderately and low-priced homes. Their high price tags are bumping up the median number.
We hear from Alec Slocum, CEO of apartment listing site Abodo, about the housing market in his startup’s home city
How does an apartment end up on Abodo’s site?
We work directly with landlords or property managers—whoever is responsible for marketing the building. Right now we work with more than fifty here in Madison, specifically in the downtown and campus area, and at least fifteen outside of downtown. We get the unit information from the landlord or managers and upload it to our own database.
Who’s using Abodo? Students? Young professionals? Families?
In the campus and downtown area, the user base is about sixty-five percent students and thirty-five percent young professionals. That ratio is fairly reflective of the downtown area as a whole.
Are Epic employees a significant factor on Abodo?
We can’t identify specific users as Epic or not, but buildings that are targeted at Epic employees have done very well on the site—the Constellation being a great example there.
From your perspective, are the new high-end apartments going up downtown getting to a point of saturation?
Madison has always been a little unique compared to other cities. The supply [of downtown housing] in Madison has been off for so long. Demand has outstripped supply. So generally what we see is that all this construction is just a market correction to make it more balanced. Because it’s mostly high-end building, it’s even harder to predict how things will play out, but based on what we see we think new units being poured on the market will just make Madison a more typical rental market.