Fast-rising mortgage rates might be denting the record home prices that Denver sellers enjoyed last spring, but they’re only serving to reinforce the low-vacancy apartment market, according to developers and recent rental data.

“You’ve seen some (home) prices start to decline as new homes and resales are taking longer to sell, but that’s actually helping the apartment market,” said Developer Darell Schmidt with Allante Properties. 

The company has built $200 million in new apartment projects over the past six years, much of it in Highlands and downtown, according to Schmidt.

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That impression jibes with the latest Denver Metro Area Apartment Vacancy and Rent Survey, released by the Apartment Association of Metro Denver.

August numbers show the multifamily home vacancy rate at 4.7%-a slight increase over the spring quarter and one point higher than vacancies were running during summer 2021.

The Association expects to issue the third quarter survey later this month.

“It’s supply, supply, supply,” said Brad Arnold, broker with Slifer, Smith & Frampton who sells The Arbory City Park West in Denver’s Uptown area.

Arnold, whose purchase units compete for some of the same customers that rental projects seek, notes that in the core urban area bounded by Sheridan Boulevard east to I-225, and I-70 south to Hampden Avenue, there are only 150 condos on the market now between $400,000 and one million dollars.

And if a buyer wants newer accommodations the search becomes much tighter, Arnold said. Just 29 of those that had been built over the past ten years are on the market now, including nine condos that he has remaining.

“I think that with rates going up as quickly as they have, a lot of people are forced to continue to rent,” Arnold said.

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The relatively low vacancy numbers suggest that developers as well as legislators need to stay focused on bringing apartments to market, according to Drew Hamrick, senior vice president for government affairs for the Colorado Apartment Association.

“We need to incentivize new development through sensible, pro-building policies like tax credits, development grants and permit-fee reductions,” Hamrick said in a statement that accompanied the survey.

“If we don’t increase our rate of construction, prices will continue to rise,” Hamrick said.

Rents are still rising, despite the slight increase in vacancies. The survey shows monthly rates increased 5.3% over the last quarter, now averaging $1,860 in the metro area. The year-over-year increase stands at 12.6%.

In addition to heightened housing demand, continuing inflation of materials and other building costs are driving up those rent prices.

Ron Throupe, who authors the Association’s rent and vacancy survey at The University of Denver’s Daniels College of Business, said production costs are rising faster than the consumer price index itself, lowering profit margins and passing costs on to consumers.

According to the survey, Metro Denver currently offers some 388,000 apartments and another 4,000 new units were added over the second quarter. The Colorado Apartment Association expects 6,000 additional units delivered by year’s end. A secondary report cited by the Apartment Association of Metro Denver as part of the same statement noted 40,000 more units are in the pipeline for development in the area over the next two years, but that labor and supply issues are expected to substantially curtail the actual numbers.

Apartment Association executives underscore that the same issues face markets around the nation now.

Some real estate agents suggest that falling prices for purchase homes could favorably affect renters’ outlook, but Arnold said he considers that unlikely.

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“Everybody says prices are going down, but I don’t see it,” Arnold said. “There are not a lot of (purchase) options under a million dollars.

“Everybody has to live somewhere,” Schmidt said, noting that some renters will compensate for the tight market by taking on a roommate, while others settle for less attractive locations.

Meanwhile, the apartment market represents a good place for investors, Schmidt said: “It’s a great opportunity to beat inflation, because you can always raise rents.”