Housing The Olympics: Atlanta 1996 1
July 19, 1996 marks the opening ceremonies for the 1996 Olympic Games in Atlanta. Over the following 16 days, 197 countries will be represented by 10,500 participating athletes; 40,000 volunteers will be at work to ensure that all goes smoothly; and 2 million visitors will descend on Atlanta to see the Games. By then, the rush to prepare for the Games will be over, including completion of the 85,000-seat Olympic stadium, the Olympic Village facilities serving the athletes, Centennial Olympic Park, the central gathering place for visitors, and the myriad of projects undertaken to improve and prepare the city for the influx of visitors. Final arrangements also will have been made to house the participants and overnight visitors. This article examines the impact -- both short- and long-term -- of the Olympics on Atlanta's housing market.
Atlanta's Economy and Housing Market Before the Olympics
Atlanta was designated as the site for the 1996 games in September 1990. Since then preparations for the Olympics have added extra momentum to an already strong economy and housing market. In recent years, Atlanta's economy has benefitted from growth in trade, business services, and telecommunications. Employment growth has averaged a very robust 90,400 jobs (or 5.5 percent) a year since 1992, with most sectors profiting from the expansion.
The Georgia State University (GSU) Economic Forecasting Center projects an employment gain of 92,000 jobs in 1996, anticipating that Olympic-related jobs will peak at just under 40 percent of this year's growth. The employment categories most directly impacted by the Olympics -- construction and business services -- have shown dramatic growth. There are now more than 82,000 construction workers in the area, up from about 63,000 in 1992. Employment in business services has increased by almost 36,000 jobs in the past 2 years alone, with percentage gains in the range of about 12 to 15 percent. According to the GSU Economic Forecasting Center, business services employment will soar an additional 20 percent during the Games.
The Atlanta area's very low unemployment rate, 4.3 percent in 1995, is indicative of just how strong the demand has been for labor. The construction boom, in particular, has exhausted much of the potential labor supply for that industry throughout Georgia and parts of the neighboring States.
Stimulated by the strong economy, the Atlanta area housing market has been very active in recent years. In particular, the sales housing market has been one of the most active in the Nation, with the number of single-family houses authorized by building permits averaging 33,000 units annually from 1993 to 1995. So far, the sales market has cleared the increased supply, and home prices have continued to rise.2
In the past 2 years, Atlanta area apartment construction reached the highest levels since the construction boom that immediately preceded the rental market crash of the late 1980s. There were 8,100 multifamily units authorized by building permits in 1994 and 12,700 units in 1995. Through the end of 1995, the absorption pace of the supply of new rental units had remained at an acceptable level. The overall rental vacancy rate also had declined to about 7 to 9 percent, after lingering in the 12-percent range from 1989 through 1992. Due to the overall market improvement and, to some extent, the inflationary impact of the Olympics, recent rent increases have been substantially above the national average. According to the residential rent survey of the Consumer Price Index, Atlanta area rents rose 5.6 percent in 1995, more than twice the national average rate for urban areas.
The Olympics and Housing Market Speculation
The thought of 2 million visitors coming to the area for the Olympics fueled a speculative fervor among builders, apartment owners, and homeowners. Clear signs of this enthusiasm can be seen in the behavior of all three parties.
There are estimates that as many as 2,500 rental units will be completed just prior to the Games and that a significant share of these units have been rented to Olympic visitors. These figures suggest that between 10 and 20 percent of last year's apartment production in the Atlanta area has a direct Olympic connection. Applications for Federal Housing Administration multifamily mortgage insurance rose during the past 2 years, particularly as builders attempting to take advantage of expected high rental demand during the Olympics turned to HUD when private lenders rejected them. Also, planned apartment construction has been timed to become available for use as daily or weekly rentals for the Olympics.
Local market analysts have identified about 1,000 rental units in projects that have contractual arrangements to be used as temporary rental housing during the Olympics. Under these contracts, current residents will vacate their units for the duration of the Olympics so that property owners can rent to visitors. In some cases this short-term arrangement is expected to be so profitable that it has made the difference in the economic viability of these projects. Lenders are reported to have required the deposit of Olympic rents into special reserves to protect against slow rent-ups after the Olympics. As the Games drew closer, there were stories that tenants of rental properties inside the Olympic Ring that encircles the downtown Atlanta sports venues would be displaced to make way for Olympic visitors. To their credit, local property managers and property owners working through their apartment association moved quickly and decisively to prevent involuntary displacements. Judging from the few incidents now being reported, their efforts have been largely successful.
Initially, Atlanta area homeowners also had high hopes of lucrative short-term rental leases for their homes during the Games. A survey conducted by the GSU Economic Forecasting Center identified 300,000 homeowners interested in renting their homes to visitors.
Despite the apparent magnitude of the Olympic tidal wave, it became obvious, as time passed, that the supply of available homes and apartments far exceeded the demand. After adjusting for length of stay and size of household, GSU's Economic Forecasting Center has estimated that the projected 2 million visitors will require about 85,000 rentals per day. Ready to meet this demand are about 55,000 hotel rooms in the greater Atlanta area, developed over the years to service Atlanta's role as a favorite convention center. Another 20,000 units will be provided by friends and relatives of the visitors. The remaining 10,000 short-term rentals will be supplied by owners of private homes and apartments.
It is now estimated that about 8,000 homes and perhaps up to 2,000 apartment units will be rented for the duration of the Olympics. The rates of the most current rentals also are considerably below the initial asking prices. Single-family homes are being leased for $150 to $400 a night per bedroom, with only a very few houses -- those with exceptional locations and amenities -- at the top end of this range. A two-bedroom apartment typically is renting for about $165 a night.
The Olympics' Physical Legacy
While the Olympics have not produced as many golden eggs as initially hoped for by apartment builders and homeowners, they have transformed the Atlanta housing market in many ways. The most long- lasting effect may be on downtown Atlanta.
Downtown Atlanta has had little development impetus in recent years, as offices, restaurants, and stores have abandoned the area for the suburbs. The major Olympic construction projects, however, are transforming the city's physical appearance to such an extent that civic and business leaders are optimistic that they will lead to an invigorated and revitalized downtown. Also, the Games have boosted ongoing efforts to include rental housing as part of downtown revitalization.
After the lull caused by the soft market conditions of the late 1980s, there has been a revival of interest in developing new apartments in the downtown and near-downtown neighborhoods of Atlanta. Three projects, one adjacent to city hall in the downtown area and two in the midtown area, are under construction and will contain 613 units. All have arrangements to be used as temporary housing during the Olympics. The downtown project, with 164 units, will be a key development to watch. It will include the amenities needed to overcome the obstacles to living in an area considered to be less than desirable for residential development. Parking spaces and a grocery store are included, and resident personal safety concerns will be addressed through better street lighting and increased policing. Some local analysts still consider this a risky venture and will be closely following the initial rent-up period.
A relatively recent phenomenon in the local market has been the success of loft apartment properties. The first developments of this type began in the late 1980s in the Castleberry Hill area adjacent to downtown. This area, designated a National Register Historic District, has a collection of late 19th and early 20th century warehouse buildings, a number of which feature rooftop views of the downtown skyline. Loft apartments also have become popular in the Five Points area of downtown. Three of the largest projects, ranging in size from about 65 to 110 units, are under construction in that area near Peachtree Street at the newly renovated Woodruff Park. Several loft developments are also located in the Marietta Street corridor near Georgia Tech.
The 1995 Arthur Anderson study on downtown market-rate housing in Atlanta identified more than 300 exclusively residential loft apartments. (Some lofts have mixed commercial/residential use.) A recent survey by Dale Henson Associates counted almost 700 loft units under construction and nearly half that number in the planning stages. Loft apartments have been well received to this point; occupancy in the Fall of 1995 was close to 100 percent, and the supply completed since then is being absorbed satisfactorily. Rents are high, averaging about $1 a square foot; two-bedroom units typically rent from $1,100 to $1,400. Tenants are young (most are 25 to 40 years old), have relatively high household incomes (usually above $50,000), and are predominately new arrivals to the Atlanta area.
Their location inside the Olympic Ring has made loft apartments very attractive to corporate sponsors. The owners of several of these buildings have contractual arrangements with companies to use them as hospitality centers and residences for VIP visitors to the Games.
As part of what is described as an instant city, 8 dormitories with more than 9,300 living spaces have been constructed during the past several years to house the athletes at the Olympic Village. After the Olympics this total will be reduced to 7,300 spaces when the living area of the largest facility is reduced from 4,000 to 2,000 spaces. GSU will operate this facility, as the school's first dormitory, which will open in the Fall of 1996. The other 5,300 new dormitory spaces will belong to Georgia Tech.
The Olympics' Long-Term Housing Legacy
After the Olympics the area economy will resume a more normal rate of growth. The GSU Economic Forecasting Center anticipates that the net employment gain will be about 35,000 jobs in 1997. Although the construction and business services jobs associated with the Olympics will be gone, the underlying strength of the economy will remain intact. Solid employment gains are expected to continue in trade and services and, to a lesser extent, in transportation, communications, and finance.
On the housing market side, the apartments and homes rented to visitors will return to their normal use. However, those units built to take advantage of the Olympics will shape the dynamics of the Atlanta housing market for years to come. The long-term impact will be focused on the downtown area where the Olympics reversed the no-new-building patterns of the late 1980s and early 1990s and fostered efforts to improve the livability of the downtown area.
The housing developments -- both the lofts and the more traditional rental units -- described in this article are an important step in this direction. The dormitories are also expected to play a part in downtown revitalization. Local civic and corporate leaders are working cooperatively to complement these and other physical enhancements, such as improved public safety and better street lighting. Their hope is that the Olympics have stimulated interest in downtown housing by creating a receptive environment for neighborhood revitalization and by providing the financial incentives that made development possible.
However, questions about the ultimate success of these efforts remain. The immediate post-Olympic outlook for the Atlanta housing market is for smaller job gains and reduced housing demand. Housing market analysts, therefore, have mixed views about whether downtown Atlanta can accommodate all of the residential development now underway. Some hold that these developments are still premature, based on the continuing decline of commercial enterprises. Others maintain that housing is imperative to creating a viable downtown and that this is the time to take advantage of the very substantial Olympic-related investment in buildings and improved infrastructure.
While an unusual and interesting submarket development, lofts remain a very limited part of the overall rental market. The large supply of units currently in the production pipeline will test the capacity of this high-end market, especially in a post-Olympic environment.
According to the Arthur Anderson study, the 7,300 net addition of dormitory spaces represents a 70 percent expansion of the inventory serving students in the downtown area. This major addition to the current supply of student housing has both advantages and disadvantages to downtown revitalization efforts. The concentration of the student population will enliven the area and create demand for restaurants, service establishments, entertainment, and other activities. There is concern, however, that many of the students who will live in the new dorms would otherwise have chosen private market rental housing. Even allowing for anticipated enrollment growth and the possibility that some existing dormitories will be phased out of operation, student demand for private market apartments will be significantly reduced by this large increase in dormitory spaces.
While a revitalized downtown is universally viewed as a beneficial and exciting prospect, a favorable outcome cannot be ensured. Progress during the next several years in attracting jobs, businesses, housing, and entertainment establishments, and in controlling crime will be necessary if downtown revitalization as a result of the Olympic Games is to be realized.
These price increases, however, have raised concern that builders may be overreacting with speculative home construction. As the economy returns to a more normal growth pattern, rising inventories of unsold homes are a possibility to be watched for in the coming year.