A closer look at one of the most interesting indicators to know the potential price increase: the ratio of empty homes

01.09.2013 Real Estate no comments

The importance of this information is in its own definition: is the percentage of all available units in a rental area that are vacant or unoccupied at a particular period of time.

Analysing how this data varies can help us somehow anticipate possible increases or decreases in the price of housing, since that price is closely linked to the shortage of available units or not, and its fluctuations influence the level of rents charged, and, consequently, the yields.

Generally, low vacancy rates are desirable because they indicate that the properties of a given market are considered attractive and rarely vacancies remain open for long. However, this fact alone is not definitive for the analysis of the potential of a given area, since it may happen that if the vacancy rate of the area is much lower than the market vacancy rate may mean that the rents in the area are very low compared to the benchmark, which means lower returns for investors or could show difficulties to increse the rents for any other reason.

Due to these reasons, professional investors consider vacancy rates as ideal when they score between 2.5% and 5%, as it means that the rental market is not undervalued and thus has the potential for further investments.

For this reason it is important also to note the growth of new housing supply, as it must satisfy the demand of the area, in the event that the occupancy rate is very low, or otherwise should build fewer homes of the market demands in the case that the ratio is very high.

vacancy ratio

 

 

 

As can be observed, the downward trend in the ratio of empty units in recent years is clear, and although it is increasing the supply of new housing, it seems that time is insufficient to control this decline, which suggest in a possible purchase price increase in the coming years, as well as income.

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