Apartment Rent Prices Rise
Amidst a market where affordability and rent controls are the subject of activist pro rent control protests, rent prices appear to rising fast in 2019.
Zumper reports that rents are growing strongly again in September while new construction starts at their lowest in several years. Multifamily starts have plummeted according to Census Bureau data.
Zumper reveals apartment rental prices are highest in California with San Francisco, San Jose, Oakland, Los Angeles, San Diego, Anaheim, and Long Beach leading the way in the Golden State. There were reductions in rent prices in some locales, however the average price rise for a one bedroom in the US rose 1% to $1,250, and 2 bedroom rentals increased 0.5% to $1,493. YoY, 1 and 2 bedroom rent prices are up 2.4% and 2.2%, respectively according to Zumper.
Oakland, Boston, New York, Providence RI, Portland OR, Charlotte NC, Newark NJ, Chandler AZ, Boise ID, Reno NV, Mesa AZ, and Chattanooga TN all had big increases YoY. Houston, Buffalo, and Baltimore saw the sharpest rent decreases.
Highest Rent Prices September 2019
Will Rents Keep Rising?
The factors that drive high and rising rents seem to be in place. And this may be a lull in the action. Some economists are adjusting their outlook on the economy and are suggesting there may be little in the way of recession in 2020.
The key drivers of high rent prices are:
- high real estate prices
- low vacancy rates
- rising incomes
- high employment
- reduced new construction
- local building regulations
- high construction costs
- investor expectations of returns
- younger renter demographics (Millennials who can’t afford to buy)
- lack of homes or condos to purchase at affordable prices
Additionally, the residential housing market has moved to single family home ownership rather than multifamily rental construction according to the latest report from multifamilyexecutive.
Construction has been brisk from 2015, yet the need for new apartments is above 328,000 per year which is unlikely to be fulfilled. That would point to a forecast of higher rental prices in the coming years. According to Realpage, occupancy rates hit a 2 decade high of 96% in May.
Rental unit construction was high in 2017/2018, but the new releases are about to slow considerably. The build to rent sector is doing well, but overall construction has slowed, particularly in the affordable housing sector.
The market is on track to deliver over 250,000 new units in Reis’ top 82 markets in 2017, the highest level of new-supply growth since the late 1980s -excerpt from multifamilyexecutive.com report.
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The National Outlook for Apartment Rentals
Several data collection and forecasting sources believe 2018 will be a flat year for apartment rental prices, just as they believe housing prices will remain flat. Given the growth of the US economy and GDP, employment trends, and demographic shifts happening, it’s difficult to sit on the flatline forecast for long.
Demand for Apartment Rentals is Sure to Rise: Urban Institute
This quote from Urban Institute tells us that demand will only grow. There forecast of apartment rentals show renters will exceed owners by 4 million.
Our analysis projects that from 2010 to 2030, the growth in rental households will exceed that of homeowners by 4 million, with an increase of 13 million rental households and 9 million homeowner households. That’s five renters for every three homeowners. Compared with the previous 20 years, the increase in homeowners was almost twice that of renters, even with the housing crash: 8.8 million new rental households and 16.1 million new homeowner households. — from blog post on urban.org.
Which Cities will Have the Youngest Population of Renters?
As this chart shows, cities with the youngest renters have the most potential renters. However, average household income and apartment property prices will determine whether they’re a good bet for the next 5 to ten years for investors. Texas, Utah, and California are the most youthful states.
|3||New Brunswick, NJ||24||$38,400|
|5||College Station, TX||25||$33,400|
|6||West Jordan, UT||25||$69,400|
|17||Huntington Park, CA||27||$36,400|
|22||Santa Ana, CA||27||$53,300|
|25||West Valley City, UT||27||$52,800|
|San Francisco, CA||39||$78,400|
|Source: US Census Bureau|
Why Will Apartment Rents Rise?
While price trends have trended lower in the last 6 months, here’s 8 reasons why rents will likely rise int he next two years:
- renters income rising faster than rent prices
- demand growing from Millennials and incoming Generation Z
- more renters now compared to those who own homes
- many hot city markets have real estate prices too high for many to buy
- construction starts not keeping up with demand
- interest rates rising causing some mortgage holders to sell
- population is more mobile hence may not want to buy a home/condo
- % of cost-burdened renters in the U.S. still high at 49.7%
- credit is tight
If apartment rental prices do remain flat for 2018 nationally, there are still cities that are growing fast and therefore demand and prices should continue to rise in them.
Investors should key in on specific neighborhoods and cities to find rental apartment property worthy of investing in. There’s still room for capital gains in these cities.
Apartment Rents 2018
As this chart from Apartment List shows, apartment rents have leveled off for many months now. We’ve seen this lull in home prices too. The market might be trying to figure out where it’s headed for the next few years.
With moderate inflation and high demand from young renters, and demand from older affluent renters, it is difficult to support a lower rental price in the best growing cities in Texas, California, and Florida.
As you can see in this graphic below courtesy of Apartment List, some cities are enjoying phenomenal growth. Definitely worth investigating the sources/factors in why they are the highest peforming cities for apartment rental.
Cities with the Best Rental Price Potential
|City||Average Rent Price|
|New York, New York||$4,100|
|Buffalo, New York||$1,000|
|Corpus Christi, Texas||$970|
|Kansas City, Missouri||$940|
|Fort Wayne, Indiana||$730|
|St. Paul, Minnesota||$1,400|
|St. Louis, Missouri||$880|
|st louis, missouri||$880|
|Jersey City, New Jersey||$2,800|
|El Paso, Texas||$750|
|Greensboro, North Carolina||$840|
|Fort Worth, Texas||$1,050|
|Fort Lauderdale, Fl||$1,800|
|New Orleans, Louisiana||$1,090|
|San Antonio, Texas||$1000|
|Charlotte, North Carolina||$1,150|
|Durham, North Carolina||$1,100|
|Oklahoma City, Oklahoma||$740|
|Raleigh, North Carolina||$1,100|
|Raleigh, North Carolina||$1,100|
|Newark, New Jersey||$1,150|
|Albuquerque, New Mexico||$840|
|Virginia Beach, Virginia||$1,100|
|Las Vegas, Nevada||$970|
|Colorado Springs, Colorado||$1,060|
|Las Vegas, Nevada||$960|
|Washington, District of Columbia||$2,100|
|Salt Lake City||$1,100|
|Santa Ana, California||$1,800|
|Los Angeles, California||$2,300|
|San Diego, California||$2,000|
|Chula Vista, California||$1,600|
|Long Beach, California||$1,800|
|San Francisco, California||$3,400|
|San Jose, California||$2,600|
|Santa Clara, California||$2,700|
|San Mateo, CA||$3,000|
We’ll be updating this post frequently to add apartment rental data and opportunities in future. Please bookmark!
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