At the Intersect, we know that predicting what the future holds isn’t as easy as looking into a crystal ball. Each quarter, CHFA’s Intersect housing blog will draw from staff and industry experts to provide market forecasts and analysis that will keep you up to date on the latest news and trends in Connecticut housing.
While a small state, Connecticut is comprised of many, diverse housing markets. Fairfield County is significantly influenced by what happens in New York City while eastern Connecticut’s housing market is impacted by its destination resorts and defense manufacturing. The state also has a variety of rental housing types, including single family attached and detached homes, a significant amount of small multifamily homes (2-4 units), and an abundance of adaptive reuse developments which were once office towers or old mills.
Demand for rental housing has remained strong in Connecticut through the pandemic with vacancy rates dropping in the state’s largest metro areas. Since Q1 2020, the Hartford metro, which includes Hartford, Middlesex, and Tolland counties, has seen vacancy rates drop from a near decade high of just under six percent to 3.3 percent (see Figure 1). New Haven County has experienced a similar drop in vacancy with a rate that currently hovers around three percent.
Figure 1 - Vacancy Rates in Connecticut’s Largest Rental Housing Markets
These low vacancy rates are likely impacted, in part, by inbound migration from both New York City and Boston. A strong home sales market that encourages some homeowners to sell their homes and rent for a period has compounded the issue. In particular, Fairfield County has benefitted from an influx of New Yorkers seeking homes with more space in nearby, relatively lower cost communities. The migration of New Yorkers into the county has had the dual effect of increasing homeownership and reducing multifamily rental vacancies.
Increased demand and low vacancy rates tend to result in higher asking rents. Rent gains are occurring in all of Connecticut’s metros, contributing to increased housing costs for renters. For example, New London County is experiencing strong rent growth, posting an average annual gain of 4.9 percent over the past three years, the highest in the state (see Figure 2).
As rents increase and demand tightens, new construction projects are feeling the pinch of labor shortages, higher labor costs, and supply chain issues. As such, the number of new affordable units coming online in the state has been slowed. In 2019, just over 1,000 new units of CHFA-financed was completed compared to just 636 in 2020 and 502 in 2021. Rehabbed units have experienced a similar decline from 1,359 units in 2019 to just 592 in 2021. Such a trend is unsurprising given the effects of COVID-19 on the construction industry. Units that otherwise would have been completed in 2020 or 2021 have been delayed as projects work through supply chain delays and seek creative solutions to growing project budgets as the price of goods has skyrocketed. A recent national survey of non-residential contractors indicates that the availability of skilled workers and supply chain issues continue to be top concerns for the construction industry coming into the New Year, followed closely by economic uncertainty and material costs. Delays will likely continue in 2022 as developers try to procure supplies and find additional dollars to cover any budget gaps due to increased costs.