New apartment completions in a metro double while population growth stays flat. The predictable effect on rents is:
Correct Answer
D) Downward pressure as vacancy rises
Why this is correct: Basic supply and demand analysis states that if supply (apartment units) increases without a corresponding increase in demand (population), the market will have excess supply. To attract tenants, property owners will first offer concessions (like free rent), then may lower asking rents, creating downward pressure on rent levels. Why the other choices are wrong: "An immediate increase in construction costs" is unrelated to the effect on rents from completed supply. "Upward pressure from the newer inventory" is the opposite effect; newer supply increases competition, putting downward pressure on rents. "No change, since rents are set by contract" is wrong; market rents for new leases are influenced by vacancy and competition. Exam tip: More supply + stable demand = higher vacancy = downward rent pressure.
Why This Is the Correct Answer
Why this is correct: Basic supply and demand analysis states that if supply (apartment units) increases without a corresponding increase in demand (population), the market will have excess supply. To attract tenants, property owners will first offer concessions (like free rent), then may lower asking rents, creating downward pressure on rent levels. Why the other choices are wrong: "An immediate increase in construction costs" is unrelated to the effect on rents from completed supply. "Upward pressure from the newer inventory" is the opposite effect; newer supply increases competition, putting downward pressure on rents. "No change, since rents are set by contract" is wrong; market rents for new leases are influenced by vacancy and competition. Exam tip: More supply + stable demand = higher vacancy = downward rent pressure.
More real-estate-market Questions
A market-conditions adjustment should be applied to a comparable:
Building permit data is most useful to an appraiser as:
In the neighborhood life cycle, what characterizes the decline stage?
'Filtering' describes the process by which:
Under the principle of substitution, the maximum value of a property tends to be set by:
Why does an appraiser analyze the market area before analyzing the subject property?
In which phase of the real estate cycle do rising vacancies first meet a still-growing construction pipeline?
Which measure most directly signals demand strength in a housing market?
The principle of consistent use prohibits:
Frictional vacancy in a rental market refers to:
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