Two seemingly contradictory ideas appear to be true in the Baltimore region. There is a housing shortage, and many apartments — especially the nicer, newer ones — are sitting empty.
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One-tenth of the area’s 4- and 5-star apartments are currently vacant, according to the real estate analytics firm CoStar.
Within Baltimore’s city limits, it’s even more pronounced. No one is living in nearly one-seventh of those higher-end apartments, according to CoStar.
These vacancies mirror a national trend, where an apartment building construction boom has glutted the market in a variety of cities. The Wall Street Journal reported the overall apartment vacancy rate in Austin, Texas, is hovering at 15%.
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Baltimore is no Austin — a thriving tech hub that went on a massive building spree — and yet some landlords here seem to be having trouble finding renters.
Within the commercial real estate industry, apartment buildings are generally rated on a 5-star scale. CoStar’s data shows that in the Baltimore region, demand is strongest for the middle-range, or 3-star, apartments, which have an average monthly rent of $1,670.
Just 6.2% of those apartments are vacant.
In a functioning marketplace, higher demand is supposed to lead to more supply.
But the marketplace for apartment buildings often works differently, said Doug Schmidt, founding principal at Workshop Development in Baltimore.
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A higher-end building might have granite tabletops, fancier appliances or more gym space, Schmidt said, but it’s expensive to build any large apartment building.
“A new building costs what a new building costs. You can’t build a building and get a return if the rents are middle rents,” Schmidt said. “And that’s not a Baltimore phenomenon. That’s everywhere.”
Building new apartments for low- and middle-income people in an urban environment where space is limited will almost always require some kind of government subsidy, Schmidt said.
To make a project financially feasible, developers have to charge “luxury” rents, Schmidt said, though he added that the word has virtually lost its meaning.
“Essentially everything that’s new has the word ‘luxury’ on it,” Schmidt said.
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Over the past two decades, the overwhelming majority of new apartment buildings nationally have been 4- and 5-star units, according to CoStar. Some have been 3-star buildings. Almost none have been 1- or 2-star buildings.
Upscale buildings don’t always work out for some developers.
One of Baltimore’s most aggressive developers of apartment buildings, Chasen Cos., is facing a raft of lawsuits related to its finances. Contractors claim they are owed millions of dollars in unpaid bills. Banks have foreclosed on two properties. And residents have complained about Chasen falsely advertising its properties as “luxury.”
Other Baltimore developers are building affordable housing, even if it doesn’t look that way. Much of the country’s low-income housing is created through a federal tax credit program. Essentially, developers can get a chunk of money if they set aside some units for low-income residents.
In the Poppleton neighborhood of West Baltimore, New York-based La Cité Development built two “luxury” apartment buildings totaling 252 units. The firm has struggled for years to rent out its market-rate units, but apartments set aside for low-income residents have almost always been fully leased.
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At Baltimore Peninsula, which pitches itself as the city’s trendiest enclave, developers also used a low-income housing tax credit to finance one of its apartment complexes.
It’s not just renters who are elbowing each other for that middle-income housing. Investors, too, have been buying older, cheaper apartment complexes, according to Brooks Healy, director of Harbor Stone Advisors.
Harbor Stone, an advisory firm in Baltimore, brokers the sales of apartment buildings. The firm saw a robust increase in sales last year, Healy said, though most investors aren’t interested in buying the 4- and 5-star apartment buildings. They want the 2- and 3-star complexes, he said.
Those buildings can be renovated, allowing owners to turn a monthly rent of $1,000 into $1,200 or $1,300, Healy said. There’s not as much interest in buying higher-end apartment buildings, especially with the rise in interest rates.
Many new apartment complexes opening now were financed during the COVID-19 pandemic, when interest rates were historically low.
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But a market correction could be coming soon.
According to the U.S. Census Bureau, the number of construction permits for new apartment and condo buildings in the Baltimore metropolitan area fell by more than half in 2024. The total number of units permitted decreased by one-third.
But for now, Baltimore’s apartment vacancy rates can seem puzzling, even to industry experts.
Tom Coale, a housing advocate and lobbyist at Perry Jacobson in Annapolis, called it “a hole in ‘The Matrix.’”
Apartment vacancies exist within a broader housing market that’s under enormous strain, Coale said.
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The Baltimore region needs tens of thousands of new homes, he said, and as the rate of homebuilding slows down, it will have a cascading effect on the housing market.
“It is about to get so much worse,” he said.
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