No Vacancy by Taber Bain licensed under Creative Commons.

"Now Leasing" signs seem to be ubiquitous on apartment buildings across the region, from the eerily dark new high-rises downtown to well-worn mid-century garden apartments with colorful banners out front. Yet at the same time, experts agree that the area has a housing shortage.

The two might seem contradictory, leading some to posit insidious conspiracy theories or complain about "many" empty apartments. The truth of the matter is rather less exciting: some empty apartments are a fact of life, and few empty apartments are a sign of a malfunctioning housing market.

There are few new homes, and few empty homes

Overall, greater Washington and the country as a whole have fewer new homes, and fewer empty homes, than normal — especially given the strong state of the economy. Nationally, the housing vacancy rate is lower than at almost any point since 1986. This shortage of homes to move into is causing "a pernicious cycle that worsens the inventory squeeze," writes Post columnist Kenneth Harney.

Fahad Fahimullah of the District's Office of Revenue Analysis recently wrote about recent trends in housing construction and vacancy, noting that DC's population has grown faster than its housing stock since 2008.

From 2008 to 2011, in the immediate aftermath of the subprime crisis, DC's population was growing quickly but construction was slow to catch up. As a result, the District's Census-reported housing vacancy rate fell by nearly half in just a few years. Lower population growth and more construction has stabilized the overall housing vacancy rate at between 6-7% in recent years, a bit lower than the national rate of 6.7%.

Yet because DC has more than 300,000 housing units, even a few percent of units adds up to thousands of empty apartments for lease — almost 13,000 in 2016, according to Census Bureau estimates.

Unsold inventory does not necessarily mean there's a surplus

Full occupancy is not zero vacancy, just like full employment is not zero unemployment. All markets for goods inherently have some sort of churn, and the existence of unsold product does not indicate oversupply. For instance, the existence of unsold avocados on a grocery shelf does not mean that the world no longer needs to grow any new fruit.

It's thankfully unusual for products to sell out instantly. Image by Wesley Fryer licensed under Creative Commons.

In an apartment building, this churn can include units that are between tenants, units that are empty for a spell while being redecorated or repaired, model apartments to show prospective renters, rented-out apartments whose tenants have moved out early (or are just about to move in), and a few units that might be kept in reserve for a tenant who requires an immediate move-in — and who might appreciate having a choice in units. The tenants moving in might be residents new to the area — but most aren't. Instead, most new tenants are moving within the region, perhaps due to a changing family situation or to be closer to work or transit.

Contributor Daniel Warwick tabulates the impact of just one dimension of churn: "Approximately 30% of renters are moving in the previous year, and if it takes a month to lease an apartment again, that accounts for a 2.5% apartment vacancy rate."

Few houses in America go unused for long. A 2014 Federal Reserve working paper by Raven Malloy finds that less than 2% of all US homes are vacant over the long term. (Most of those are in a few economically distressed neighborhoods, where there's low demand for housing.)

Besides, products that sell out overnight are the exception, not the rule. When people have lined up for a product, that's a sure sign that pent-up demand probably vastly exceeds the supply offered. Not every customer can make it to the opening night — so luckily, even goods that customers queue for (like new iPhone models, or tickets to a Star Wars premiere) are usually still available for customers who show up the next day.

New buildings take a while to lease up, partly for logistics reasons

Brand-new apartment buildings obviously open with all their units empty, and assume that they will fill up over a one-two year "lease-up period," during which the apartments are gradually rented out. (The typical new apartment building in DC currently takes 14 months to lease up.)

About 13% of the Channel's apartments are listed as being available for immediate occupancy --- about normal for a building that's not even a year old. The Channel, a 501-apartment building at District Wharf. by the author.

Phasing in new tenants greatly eases the logistics of opening a new building; thankfully, the chaos of dorm move-in day is the exception, not the rule. Even for a building that's entirely pre-leased or pre-sold, the new residents move in gradually, so their move-in dates (and lease expiration/move-out dates) are staggered — allowing for efficient utilization of not only freight elevators and loading docks, but also of the leasing agents' time. Phasing in the first apartments gives construction crews a bit more time to finish installing (or fixing) unit interiors.

By the time that big new tower is leased up, though, the grumbling neighbors have stopped noticing that it's new, and instead are fixated on the newest "empty" building.

The carrying costs during the lease-up period are built into the developer's construction loan, whose principal is usually not due until several months or a few years after construction is completed. At that point, the building is considered "stabilized" and must be refinanced with a "permanent mortgage." The permanent mortgage lender (often Fannie Mae, Freddie Mac, insurance companies, or banks) will value the property, and thus its loan, based on the property's income. Having as many units paying rent as possible is especially in the developer's best interest during that appraisal.

Exceptions only prove the rule

There are a few odd exceptions that prove the rule. Sometimes in DC, a developer will build an empty building to sell; this saves everyone the paperwork of going through the District's TOPA law. But even though the building might remain empty for a while, the whole point is still to fill the building with rent-paying tenants sooner or later.

Some argue that new buildings only create more demand for housing, citing the concept of "induced demand." Yes, there is such a thing as induced demand for housing: household formation rates do ultimately respond to the supply of houses. Four housemates in a shared house might well choose four separate apartments, if given the chance.

However, induced demand is much more costly with houses than with vehicle trips: it takes a lot more effort for someone to move into a new apartment than to drive a few more exits for groceries. And whereas suppressing induced demand for auto trips reduces pollution, suppressing housing demand results in either diverted housing demand (resulting in sprawl), or in overcrowding and higher prices.

Gotta keep restocking the shelves

Some people point to new buildings that have just been built, or plans that have been adopted, as an excuse to slow or stop the construction of new homes. That's like saying that because there are avocados on grocery store shelves today means that there can never be a shortage of avocados. For instance, Montgomery County Executive candidate Marc Elrich waved off the need to approve further development, saying that future residents and jobs can just move into approved but as-yet-unbuilt homes.

Our region continues to add about 80,000 new residents a year, most of whom are natives, having been born here, and therefore have no choice but to live here. If we don't have a few vacant apartments ready for new residents to move into, those residents will instead bid up the price of existing homes in a "cruel game of musical chairs."

Making sure that everyone has a place to live — and recognizing that residents have a right not just to housing, but to a choice of housing that best works for them — requires both more new homes of all kinds, and that at least a few of today's homes be vacant.