After three years of double-digit increases, apartment rents declined in May for the first time in 15 years according to Rent.com. Now in the ninth month of deceleration, with rent growth averaging less than two percent for each of the last five months. The slide is significant after two years straight of 25 percent-plus rent growth—and as much as 35 percent in markets like Miami and Riverside, Calif.
This decline is—in reality—even more abrupt according to industry analysts who say that including lease renewals (along with new leases) distorts the number upward. Average rent increases on renewals and new leases have become markedly different because a large percentage of landlords artificially held renewal rent increases low in order to retain renters during, and for a period of time after, COVID. At the same time, data on new-lease rents—thought to be a more accurate indicator of trends in rents—have now begun to see a similar slide. Landlords in nearly half of the 100 largest U.S. cities are beginning to lower new lease rental rates according to Apartment List.
A softening economy, high interest rates and, finally, a historic level of new apartment inventory coming online will continue to fuel this trend.
Housing remains a significant focus of the Fed’s tinkering as the economy continues to rebuild after COVID lockdowns, record-level infusions of cash and other now-controversial national decisions. Often referred to as the backbone of the nation’s economy, housing represents a significant share of household expense and is the largest metric (about a third) of the total consumer price index (CPI). Shelter under the CPI rose 8 percent over the last year and 0.6 percent in May.
Apartment supply will also look very different by year’s end. Nearly 600,000 units spanning 3,300 new communities—the largest number since the 1980s—will come online by Q4. While this will greatly help the nation’s housing shortage on the coasts (Seattle, San Jose, New York, San Diego, Los Angeles), many areas at the center of the country will continue to feel the impact of low supply in the way of workforce and affordable housing.
The imbalance has caught the attention of developers. Workforce housing is generally defined as housing affordable to households earning between 60 and 120 percent of the area median income ($45,000 to $85,000/annually). Where economies permit, it is not long before demand is addressed in a nation of builders. One example of incoming development is Greystar Real Estate Partners. Their newly-launched division, Ltd. By Greystar, will focus solely on workforce and affordable housing. The units will be sustainable, modular construction, which is built off site. The first property on the board is in Houston.
