Boise is booming, in large part because of the influx of people from California. Over the past three years, the population has grown by 8 percent, a tremendous amount. This has put a lot of pressure on housing, both single family homes and rentals. The average rent has gone up 30 percent and house prices are up 60 percent. Builders simply cannot keep up with such growth.
House prices are rising much faster than rents, which are closely related to local incomes, but they are a good indicator of the strength of demand for all units.
The prices in Boise have gone up dramatically because they were initially so low – relative to the prices in California. In 2018, the average home price was $ 275,000 in Boise, $ 560,000 in Los Angeles, and $ 1.2 million in San Francisco.
Although the current demand for housing is strong, investors should focus on future demand. Our best indicator of future demand is employment. More jobs mean more housing needs.
During the pandemic, all markets lost jobs, so our estimates of future growth are based on how quickly those jobs are returning. For Boise, this is not even necessary because the number of jobs is already 3% higher than before the pandemic, a very strong indication for the future.
But a wave of jobs in a relatively small market like Boise (population 700,000) can also end quickly – especially as higher house prices deter more people from coming – so we need to determine whether the types of The jobs that were created will also create more jobs in the future or are just a one-time boost.
Over the past three years, 26,000 new jobs have been created in Boise; 7,000 in construction, 6,000 in commerce and transport (Amazon), 4,000 in business services, 6,000 in health and none in the important manufacturing sector (Micron).
Jobs in commerce, transport and health care generally increase with the local population. Construction jobs are volatile; workers move in when demand is high, but leave when the push is over.
The most solid avenue for Boise’s future growth is the large and growing business services industry with a large technological core.
The most likely scenario for Boise is therefore good long-term growth but with the high risk of a house price bubble bursting in the near future. In other words, this is a market that investors want to be in, but the risk of entering it now is very high, you could buy near the top.
In such a situation of uncertainty, it is better to invest in the less risky options: apartments or single-family homes that can be converted into multiple rental units. Investors should not expect rents to continue to rise as they have over the past few years – they could, but they could also fall when the bubble bursts; you should only pay for a property what the current rents justify.
In any market, some places are more rental friendly than others. Investors should know the best rent range in each local zip code, where the largest number of current tenants are found. On average, a tenant moves into two years; you will need to find new ones regularly. Properties with rents in the best rental range have the least difficulty attracting replacement tenants. Above this range, investors face the risk of Vacancy during tenant rotation or may even need reduce the rents to attract tenants.