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New construction changes the local rental picture

Saturday, November 10, 2007 11:44 PM CST

Pick up your newspaper and you'll see the latest headlines in the troubled national housing market: "Sales of existing homes had a record decline in September while median home prices fell by the largest amount in nearly a year." Analysts say "the current downturn is already more severe than the housing slump of the 1990s" and they predict that it will rival the 1980-82 housing crash.

This slump may have serious consequences for Carbondale's neighborhoods, where every spring "for sale" signs sprout like daffodils in the front yards of families who are moving up or out. Over the past 30 years, a great many homes have been converted to rooming houses.

"Business is down 15 percent in Carbondale. At this time last year, there were 50 houses on the market. Right now, there are 150. Recordings of housing sales all over Southern Illinois are down," said Julian Pei, one of the owners of Realty Central.

According to Rob Keehn, the planning services director of the city of Carbondale, the housing market is overwhelmingly rental, with more than 70 percent of the housing stock, about 9,000 units, devoted to rentals. New construction in Phase 1 of The Reserve at Saluki Pointe on South U.S. 51 is adding 672 bedrooms to the market with a proposed Phase 2 of another 300 bedrooms. Another developer has submitted plans for a 164-unit complex (that's 765 bedrooms). How are they going to fill these proposed 1,728 rooms? The answer, according to everyone we spoke to, is by drawing renters away from substandard housing, particularly the rooming houses - single family homes converted to rentals over the past 30 years - as well as poorly maintained apartments.

Barrett Rochman, an investor in real estate, said student rentals are the "floor" under Carbondale's housing market since landlords can often pay more for an older house than a homeowner, due to the remarkable profits they can obtain. Some landlords, ignoring code restrictions, double the bedrooms in 3- and 4-bedroom houses through converting garages and basements to bedrooms and walling up living and dining rooms. Skimping on maintenance, and with houses renting at $250 or more per bedroom a month, owners of rooming houses can easily earn more than $1,500 a month.

Rents at the newly constructed developments will be competitive, but the housing is reported to be first class. They feature recreation centers, a movie theater and other amenities. Pei, who has a detailed grasp of statistics and numbers in Carbondale, said, "Students are wising up, they are becoming smart consumers" and they will choose this new, hassle-free housing. He predicted that just the first phase of Saluki Pointe will result in over 100 rental houses being vacated in Carbondale.

"My crystal ball tells me that a year from now a lot of landlords will be in deep trouble," and dumping properties on the market, Pei said.

What about the real estate market in the largely owner-occupied neighborhoods? Even here, some realtors are seeing a sag in the market as credit dries up for first-time buyers. At one point, "if you were breathing you could get a loan," but not now, Pei said.

The lending institutions in Carbondale have traditionally been very conservative, even they were awash in the cheap money of the last few years. "We may be going back to the traditional days of 15 percent to 20 percent down payments," Pei said. That, in turn, may keep young families from purchasing their first homes.

In the last five years, housing prices for single-family homes have risen in our neighborhoods. Real estate agent Marcia Sinnott said houses that sold in the $65,000 to $70,000 range have been selling this year for $95,000 to $110,000. "They have to be nice brick or other well-maintained buildings, of course," she said. But prices are now sagging.

Another recent trend is for relatively high-worth buyers, such as doctors and high level administrators, to rent houses that aren't selling. "They're reluctant to commit in this market," Sinnott said. "They've overbuilt in the higher price ranges."

"There's no bubble in Carbondale, so there's been nothing to burst," she said.

She explained that faculty, in particular, tend to be "fiscally conservative" in spite of being two-income families with secure jobs, pensions and health care. And faculty, along with people associated with the medical community, make up much of the Carbondale market.

The huge payroll of Southern Illinois University undergirds the economy of the region. State tax receipts, family and student ability to fund university education and federal grants depend on a vibrant national economic base. There is the possibility of a national recession tied to the failing housing market, however.

An energetic administration at SIU, led by President Glenn Poshard, is reversing the loss of students. Good, comfortable, safe housing is part of the strategy Poshard has adopted as one way to maintain and increase enrollment. Strong code enforcement will assure that good quality housing is available. This may lead to higher enrollments in the future, with a corresponding increase in housing demand.

There is no question, however, that difficult times lay ahead in the housing market. Only when the turmoil over sub-prime mortgages works its way through the economic system will we return to something approaching normality. In the meantime, we are sheltered in this area by the vast payroll of SIUC and its students.

Jane Adams and D. Gorton are residents of the historic Arbor District in Carbondale.