Back of the envelope calculations for third year housing

On February 8th the board of trustees of Washington and Lee unanimously voted to require third year housing for students starting in the 2016-2017 school year. The school will be building new housing accommodate the requirement. Leaving aside the cultural impacts of this decision let’s take a quick look on what this means for the local economy. In the short term it could me an influx in construction jobs and then additional maintenance and security jobs once the project is complete. However, third year housing has substantial negative long term effects on the Lexington economy. Specifically, I am thinking about lost rental revenue and ultimately empty rental houses on the Lexington real estate market.

To wrap our heads around this lets do some quick back of the envelope calculations. Let’s assume that it will be the junior class will living on campus. There are approximately 400 students in the junior class. Not all of these students live off campus due to being RA’s or living in other special on campus accommodations so let’s put the number of juniors coming to campus housing at 370. Let’s also assume that these individuals would otherwise being living 5 people to a rental house somewhere in the Lexington area. That is roughly 74 houses that are suddenly going to be empty. Unless there is a factory opening up that I do not know about, I am guessing that rental agencies are going to have a hard time renting out these homes, much less renting them at rates that they are accustomed to. Rental prices will likely fall along with real estate prices around the county. Rental homes will no longer be a good investment here and rental agencies might try to dump their extra properties before they become maintenance black holes that they can’t sell.

Let’s do some quick rental revenue calculations. Of the two homes I’ve rented in the Lexington area, I have paid $525 a month and $425 a month. For the sake of argument let’s say the average for the Lexington area is the average of these two numbers: $475. So, multiplying that out by the 370 individuals that are moving to campus and a full 12 months of rental we get $2,109,000 of lost rental revenue for the area per year. Add to that services such and cable TV and internet for these homes and it constitutes a substantial loss of income as well as tax revenue for the city. Not an unsubstantial amount. 

All things considered this looks like bad news for the Lexington economy.

--Price Bohrer