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 Market Questions
Building permit data is most useful to an appraiser as:
In the neighborhood life cycle, what characterizes the decline stage?
In which phase of the real estate cycle do rising vacancies first meet a still-growing construction pipeline?
The principle of consistent use prohibits:
Employment in a one-industry town falls 20%. Through what mechanism does housing demand contract?
Frictional vacancy in a rental market refers to:
The principle of opportunity cost applied to real estate means:
A neighborhood with a wide range of property values requires the appraiser to:
In-migration to a metro area increases housing demand primarily by:
Absorption rate expressed in units per month is calculated by:
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