As 2019 saw historically low vacancy rates among multifamily housing, it also led to a rising cost of rent, too.
According to realtor.com, a report from Abodo said rental prices went up in 38 states, including Washington, D.C., in 2019. In the other 12 states, the cost of rent actually fell, but only slightly.
Nationally, median rents for one-bedroom units went up 4.1%, making monthly rent $1,078 at the end of 2019.
Prices for two-bedroom units went up 5.5%, making monthly rent $1,343.
In 2019, multifamily occupancy rates reached as high as 96.3%. The demand of multifamily housing keeps rising, as home prices are also continuing to climb.
According to realtor.com, rental prices surged the most in Utah. There, rent went up 3.78% in 2019, reaching $965 for a one-bedroom unit.
“In states like Utah, people are relocating for jobs,” Abodo said in its report. “Many folks are coming from California and other high-priced hubs. People need to find places where they can live and afford to live a lifestyle that they want.”
Renting cost the most in Massachusetts, where the average one-bedroom unit cost $2,218 a month.
Renting surged the most in Detroit, where cost of renting a one-bedroom went up 7.48%, making rent $886 a month.
“They’re seeing a housing boom,” Abodo continued. “There are more people moving there, which increases the demand for housing as the city begins to come back. New construction has actually started there, which is obviously going to cost more.”
The highest rents in the nation were, at no surprise, San Francisco and New York City. On average, renting a one-bedroom unit was $3,877 and $3,082 a month, respectively.
Renters in Montana saw the biggest price cuts in 2019. Rents fell 1.6%, to an average $745 a month for a one-bedroom unit.
Average prices fell the most in Dayton, Ohio, in 2019, falling 4.11%. This made renting a one-bedroom unit $758 a month. Toldeo, Ohio also had the best deal, where rents were just $517 a month for a one-bedroom unit.
The cost of rent in the U.S., particularly in certain metro areas, is too darn high.
Nearly half of U.S. rental households are spending more than the recommended 30% of their income on rent, according to a report from Apartment List. (The national rate went from 49.5% in 2017 to 49.7% in 2018.)
And according to Apartment List, “in 19 of the nation’s 25 largest metros, a household earning the median renter income would be cost-burdened by the median rent. Of the 100 largest metros, the median renter would be burdened in 64 metros.”
Among the biggest metros in the U.S., Miami has the highest cost burden rate at 62.7% — this means that 62.7% of its renters are spending more than the recommended 30% on rent. Not far behind is New Orleans at 60.1% The two largest metros in the U.S. by population, New York and Los Angeles, are at 52.2% and 56.9% respectively. Given their size, NYC and LA house the highest number of cost-burdened individuals.
Miami has the highest cost burden among the biggest metros, but California has the most cost-burdened households. (Graphic: David Foster/Yahoo Finance)
“Certainly, the worst offenders — places like Los Angeles, Boston, San Diego, Miami — these are places where it’s not always easy to build as many houses as you’d like, but also their economies have been very strong, so the increases in rental [costs] become an unfortunate byproduct of that,” Igor Popov, chief economist at Apartment List, told Yahoo Finance.
By state, Florida has the highest cost burden rate at 56.5%. Other high cost-burdened states include New York, New Jersey, California, Colorado, Louisiana, and Connecticut — notably places along the coasts.
“We’re seeing that especially coastal cities — where adding new housing is difficult but economies are booming — those are the places where affordability issues are stacking up the most,” Popov said. “With that said, it is a national problem so even cities that aren’t necessarily in the housing affordability debate every day still have a lot of renters who are struggling.”
A building with residential apartments stands in the newly developed and exclusive Hudson Yards neighborhood in Manhattan on September 13, 2019 in New York City. (Photo: Spencer Platt/Getty Images)
Supply and demand
Then there is San Francisco, which has a cost burden rate below the national average — despite the fact that the city has the highest rent in the country. This is because of rent control, Popov explained.
“A lot of the people who are able to live and rent in San Francisco are ones that have been in rent-controlled apartments for some time,” he said. “And so a good chunk of the city is covered by rent control. When you look at who’s actually able to rent in the market, a lot of families are able to afford it because they are basically paying below market rates.”
He continued: “The market rates in San Francisco are essentially the highest in the country. If you’re just moving to San Francisco and looking for an apartment, the prices are very high. But formally, the majority of people that are able to comfortably add rent are the ones who aren’t paying the market rate, but are usually in a rent-controlled apartment. Rent control often plays a role in these affordability numbers, often driving a wedge between the market rate that a new resident would pay, versus the rent-controlled rate the existing residents pay.”
Vineland, New Jersey, has the highest cost burden rate. (Graphic: David Foster/Yahoo Finance)
Because of high rents in many of these cities, residents often turn to surrounding areas to reside for more financially feasible places to live. This is the case of Riverside, Calif., a city near Los Angeles, where the median rent accounts for approximately 36% of a person’s income.
“Riverside is actually seeing a lot of people who are migrating from the LA metro in search of more affordable options, but that demand is, in turn, driving up the price there as well,” Popov said.
‘I guess we went in the wrong direction’
Supply and demand wasn’t the only factor that affected the increase in rent-burdened households last year. Rental increases also outpaced wage growth in 2018, the first time since 2011.
“There’s a lot of factors for why that might be but on a very macro level, I think this economic expansion has been one that hasn’t [benefited] low-income households very well,” Popov said. “That shift was a bit surprising especially given that … we’ve seen a lot of high-income renters flooding in the rental market. In some ways, they’ve been padding the stats, so to speak, because they’ve come in and they’ve typically been able to afford their rentals, so they’ve made it look like things are getting better but this year, I guess we went in the wrong direction.”
From 2017 to 2018, there were nearly 300,000 more cost-burdened rental households throughout the U.S., which Popov described as “a big change in the number of people that have gone from being able to afford their housing to technically living in a place that they’re unable to afford.”
“You risk them moving away and that could both affect the economy and the economic diversity of a city when the renters move away, and you risk not being able to attract talent to grow the economy, and you risk not having basically that next generation being able to come and move to the city to keep it vibrant,” Popov said. “I think of this on a city-by-city basis and on that level, there are a lot of markets where maybe the flag isn’t being raised for the first time — maybe it’s been raised for a while.”
September 2018 marked the first time in eight months that U.S. multifamily rents did not increase. The $1,412 national average for the month represented a $1 drop from August and a 3.1% year-to-date increase; year-over-year rent growth remained unchanged at 3%, according to a survey of 127 markets by Yardi® Matrix.
The report presents an overall bright outlook for the multifamily sector. A slight decline in rents is normal at the start of fall, it says, “When rent growth traditionally begins to hibernate for winter.” Strong demand countering the steady wave of new supply is another positive sign. “Long-term demand for rentals is likely to remain high for a variety of demographic and social reasons,” the report notes.
Year-over-year rent growth leaders for September were Orlando, Fla.; Las Vegas; Phoenix; Tampa, Fla.; and California’sInland Empire.
View the full Yardi Matrix Multifamily National Report for September 2018 for additional detail and insight into 127 major U.S. real estate markets.
Yardi: U.S. Multifamily Rents Fall to $1,419 in November
Year-over-year rent growth cools to 3.1%; growth remains strongest in the West and South.
U.S. multifamily rents fell by $2 in November, down to a national average of $1,419, according to the latest Matrix Monthly report by Yardi Matrix. Year-over-year (YOY) rent growth fell by 10 basis points (bps) at the same time, down to 3.1%.
Yardi attributes this shallow decline to normal seasonal fluctuation. Both multifamily rents and rent growth peaked in September, at $1,422 and 3.3%, respectively, or $3 and 20 bps above current rates. The year’s rent growth matches November’s, at 3.1%, slightly above Yardi’s estimates at the start of the year.
Deliveries have plateaued, at nearly 300,000 per year, in each of the past three years, and occupancy remains at or above 95% in most markets. New household formation is running at 1.5 million new households per year.
Of the nation’s largest metro markets, Las Vegas has the highest rent-growth rate, at 7.4%, propelled by strong job growth outpacing new unit supply. Yardi predicts this market will remain under supplied, as units under construction and planned in Las Vegas represent only 4.0% of the metro’s total stock. Phoenix comes in second, at 6.6%, followed by California’s Inland Empire, at 5.4%.
Despite out migration and high costs of living, five of the top 10 markets for YOY rent growth are in California, including San Jose (5.0%), Los Angeles (4.2%), and San Francisco and San Diego (both at 4.0%). All of these markets are in the bottom seven in deliveries as a percentage of stock—Sacramento and the Inland Empire are growing at a rate of less than 1% per year.
Rent growth was flat at the national level on a trailing three-month (T-3) basis, which compares the past three months with the previous three months. A few under supplied, warm-climate markets experienced growth, including Las Vegas (0.6%) and Phoenix (0.3%), while rents declined at the metro level in most major markets. Seattle and San Jose experienced the largest rent drops on a T-3 basis, at -0.6%.
Again, Yardi attributes this slowdown to the seasonality of most of these markets and notes that these figures represent normalcy and stability in the multifamily sector, as rents have historically cooled in November and December.
Despite some worries about the state of the economy, Yardi expects multifamily capital to remain readily available through 2019, especially because multifamily assets are considered less risky than other property types. According to the Mortgage Bankers Association, multifamily (and industrial) lending rose by 19% YOY in the third quarter, despite an overall 7% drop in commercial mortgage origination. Life companies and the GSEs posted slight increases in lending, while CMBS lending fell 53% YOY, and commercial bank lending dropped 22%.
