My dad use to say that to me quite often when he’d read something in the newspaper or hear it on the news and he knew it was so blatantly askew that there was no way for it to be true. I’m sure if he were alive today he would be saying the same thing about the twist the government has been making about the weak economy and high unemployment rates. But I’m not writing about the creative skills of the current administration today, I’m writing
about my brethren in the real estate industry, the agents who make their living selling apartment properties and promote how great the market is by quoting the currently occupancy levels.
Are the current occupancy levels being quoted real? Yes and no. There are actually two types of vacancy that is calculated by the apartment industry, vacancy and economic vacancy. When you read in the newspaper that a real
estate agent is speaking about an incredibly low vacancy they are talking about just that, the number of units that are unoccupied compared to the number of units that are occupied. Pretty simple, but this type of vacancy doesn’t tell the whole story. How did all those vacant units get filled? Did the property offer a free rent period or low base rent period? Was the application fee waived or security deposit reduced? Perhaps there was an incentive such as a free wide screen television or gift card given with each lease signed. All these inducements to get a prospective resident to sign a lease have a value that reduces the net amount of rent during the lease period.
For example, a two bedroom apartment is marketed for rent at $850 per month and at this rate vacancy would be about 18%. Because in the market place where the apartment is located this would be very high rent the owners of the property know they must offer incentives to get vacant units occupied. In this case we will assume they have waived the application fee, a $35 value and given a free month rent with a twelve month lease. The net effect of these incentives is that the rent over the lease period is $776 per month, closer to the going market and vacancy is able to be maintained at 6%. If the property owner did not give the incentives their vacancy would be higher and this higher vacancy is called economic vacancy.
So what does all this have to do with the saying that “figures lie and liars figure”? The article I mention in the paper has the real estate agent quoted as saying that rents have moved to an all-time high of $850 with vacancy levels at 6%. Is this starting to be blatantly askew? The agent is talking apples and oranges when they state the rent as being before incentives but the vacancy after incentives. To be correct the agent would have had to state that rents are at $850 with 18% vacancy or that rents are at $776 with 6% vacancy. But then, neither of these figures would be attractive to prospective apartment buyers so the agent took the best of both worlds. Figures lie and liars figure.