Denver renters may not like how the renting market did in the second quarter

Denver renters already know this, but they’ll still probably groan: Rent in the Denver metro area is up again.

Average monthly rent for the second quarter rose $36.98 to $1,419.74, hitting another rental high. Median rent rose $31.21 to $1,376.79, according to the Denver Metro Apartment Vacancy and Rent report from the University of Denver’s Daniels College of Business and Colorado Economic and Management Associates.

But the big takeaway from this report, said its author, Ron Throupe, is that 4,348 apartments were filled in the quarter, outpacing the 2,152 new units added. Since January, 9,012 net units have been filled, making it a strong year so far. In comparison, 11,056 net units were absorbed in all of 2016.

In layman’s terms: Demand is high — which, again, may make Denver renters groan. But on the bright side, Harvard Extension School real estate instructor Teo Nicolais said, high demand means you’re living in a desirable place.

“Denver has been discovered, but we should (feel) lucky,” said Nicolais, who lives in Denver. “A lot of cities are cheap to live in, but it’s cheap to live in because no one wants to live there.”

Denver’s vacancy rate dropped to 5 percent from 5.7 percent in the second quarter, according to the report. That’s not surprising considering the state has the nation’s lowest unemployment rate (2.3 percent) and millennials continue to flock here. The rate in Denver is 2.4 percent.

The market needs a degree of vacancy, allowing for people to move around. Nicolais said the magic number is 6 percent. If the vacancy rate is below 6 percent, rent prices typically go up. If it’s higher, rent typically drops.

But there may be a shining light on the horizon as more red ribbons are cut on apartments.

Although new construction dropped in the second quarter, adding 2,152 units compared with the previous quarter’s 3,246 units, the metro area is still on track for another record-breaking year of apartment construction. In 2010, Denver built 497 apartment units, he said. The metro area now builds that many in two weeks.

Nicolais compared the renting market to musical chairs. The tension comes from the scarcity of chairs, but by adding some back in the circle, the tension eases.

“We have added supply — that’s really important, more supply than we did this time last year — but the demand continues to be really strong, and that’s creating the scarcity and that’s what’s putting upward pressure on rents,” he said.

Construction takes time, too. And as Throupe mentioned, there is a massive shortage of construction workers, slowing building openings.

Those apartments being built tend to be luxury apartments, which makes sense considering the cost of building a luxury apartment isn’t much more expensive than a nonluxury apartment, but the rent is much more, Nicolais said.

Denver renters hoping for affordable housing may scoff, but Nicolais said any new apartment is good news. People who can afford the luxury apartments will move into them, leaving their former apartments open for others.

Then again, Throupe said the expensive rent for luxury apartments tends to have a snowball effect, encouraging other landlords to raise their rates.