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Rent on the Rise
New data shows unprecedented growth in asking rent prices
While the national news focuses on whatever new covid-19 variant has jockeyed for center stage, the national economy and more specifically, the multifamily industry is still feeling some crazy symptoms of the pandemic, and the latest one is literally unprecedented. Among the many, many accomplishments covid-19 has under its belt for turning life as we know it on its head, one of its most important feats to our work in multifamily is to highlight the importance of the interplay between landlord and tenant. Our last nugget of insight on the topic came from the discourse on rent freezes and eviction moratoriums, where we saw first hand how relief for many turned out to cause grief for others.
Now, while I personally root for any outcome where everyone can walk away feeling happy and not cheated, that fairness is rare and sometimes just a matter of perspective. That’s why this next update is much easier to present as a simple insight, rather than an invitation to an outright discussion. The implications are what they are, but the true importance lies in the news itself: multifamily national rent growth is skyrocketing.
According to the latest Yardi Matrix Multifamily National Report for June 2021, there seems to be an eye catching trend among rent statistics. Namely, national rent growth metrics are showing some record highs. The increases are more or less across the board, however it is important to note that the most stunning changes can be seen in the asking rent prices for yet-unleased apartments.
As the report shows, asking rent prices have risen by an estimated 6.3% since the same time last year. On a national scale, this is the largest year-over-year increase on record over the history of Yardi Matrix reporting. It may not seem like much, but the rise has increased the national average rent price by a solid and similarly record breaking $23.
In a nod to what may be early signs of an impending boom in the market, year-over-year lifestyle rents (up 7.2%) have been picking up a steady pace of growth, and are actually outpacing rent-by-necessity (RBN) figures (up 5.8%). This is a trend that hasn’t been seen in roughly 10 years, with 2011 showcasing similar findings. Even single family rents have risen by a record breaking 11% since last year, rounding out some key insights for the second half of 2021.
These figures are surely eye-catching, but mean nothing without some context (the grain of salt) behind them. Trends can mean almost nothing when the environment has suffered a drastic enough change, and the pandemic has absolutely upended quite a few data trends before some form of normalization could occur. We are still in a recovery phase, and last year was hopefully the worst of the whole ordeal. That said, it did leave quite a bit of room for growth.
Still, it is truly delightful to see 27 of the 30 major metro areas performing so well simultaneously, even if only from an investment point of view. And while we won’t revisit the topic of landlord versus tenant woes when it comes to rent, it would be a shame not to mention the rate of collections has also rebounded back to a steady and reasonable level. This may very well be a direct result of the massive and equally unprecedented volume of government stimulus dumped into the economy in response to the wounds inflicted by covid-19.
It's no secret that both covid-era administrations have doled out a considerable volume of stimulus checks, enhanced unemployment benefits, and over $45 billion of direct renter payments alone. The aim may have been to give the entire economy some field dressing to continue its battle for survival, but what we got instead seems more like a shot of adrenalin to get the multifamily industry back on its feet. Across the nation, where there were once cries from tenants pleading not to be evicted, there are now content landlords who no longer fear losing their own homes from a lack of income.
Month over month statistics help build a stronger observation, where all 30 metro areas have seen healthy rent growth over 1%. Nationally, the average is up 1.6% since last month. Urban markets such as New York and Chicago, which seemed to suffer more during the pandemic as folks fled to nearby areas with a lower cost of living, are making a comeback with the same gradual yet impressive increases of nearly 2%. Even in the M-o-M stats, lifestyle rents now up 2% M-o-M, have a clear lead over RBNs which only increased by 1.2% since last month.
One of the most important factors to keep in mind with the emergence of these figures is that the pandemic held up new multifamily construction projects for quite some time, and the niche is only now regaining solid footing. Limited supply of new rental units plays a huge role in the asking rent increase, and no metro area paints this picture as well as Phoenix, Arizona. Phoenix has seen an incredible influx in migration volume from nearby (and more expensive) metro areas, by renters used to much higher rents where they are coming from. Even so, with only 3.2% of new stock delivered over the last 12 months, there simply aren't enough new units to keep up with the migration numbers.
It's a similar scenario in most of the markets across the board, single-family housing included, as the lumber and construction industries both took some hard hits during the quarantine days and are still working to get back into gear. Even now, the cost of constructing new housing still greatly reflects this struggle. The effects are greater for multifamily, though, since the additional burden of higher single-family residential prices (due to a lack of supply for the exact same reason) has birthed a hot housing market. In turn, many homebuyers are instead choosing to rent while they await more affordable housing options.
Supply, however, isn't the sole factor of the rent growth. The government stimulus mentioned earlier has a part to play as well, and not only in terms of boosting rent collection. As it turns out, the injection of funds to the American people, coupled with strict pandemic lockdowns and a lengthy quarantine period has led to an incredible growth in household savings, to the overall tune of $2.5 trillion since the beginning of the pandemic. With more money in savings, many are opting to continue renting while saving towards a mortgage down payment.
No matter how you slice it, multifamily is catching its second wind after a tough year. Industry analysts mostly agree that the increases should actually continue well into the year. So just what exactly does that mean for the entire industry? Well we’ll just have to stick around and find out.