Apartment Market Industry Study Looks at Trends Driving the U.S. Rental Market

Seattle, RENTCafé, residential, rental market, Puget Sound region, Millennials, rent growth, San Francisco, Portland, Denver
Image courtesy of Revolve

By Jack Stubbs

Both regionally and nationally, the rental market is in a state of flux, and many online platforms provide users with the ability to track changes occurring in the industry.

RENTCafé is one such platform that offers clients the ability to track and find available rental apartments in real time, submit rental applications and receive approval notifications on rental properties.

On January 31st, 2018, RENTCafé released a study that examined national trends in the rental market. We spoke with Nadia Balint, real state writer for RENTCafé, about some of the key findings from the report and what they reveal about regional and national trends driving the rental market.

Seattle, RENTCafé, residential, rental market, Puget Sound region, Millennials, rent growth, San Francisco, Portland, Denver
Nadia Balint

Can you elaborate on some of the key findings from the report? What do you think accounts for some of the widespread changes in rent growth? Were there any statistics that were particularly surprising or unexpected from the report?

Our January Rent Report focuses on the fact that 89 percent of the nation’s biggest cities have seen rent increases over the year, with the largest increases in small and mid-sized markets. Some of the most interesting changes we’ve noticed at the beginning of the year have to do with fast-growing rents in recovering markets. There’s also increasing pressure on rents in cities which have been slow to build and also in cities located outside large urban areas that are feeling a ripple effect of high prices.

What do you think accounts for the increase in national rents in 2018? Where do you think rental rates will go in the year ahead (M-o-M and Y-o-Y)? What other large-scale trends does the data represent demographically? Generationally?

These national increases are a continuation of last year’s steady growth trend, sustained by an improving economy, more jobs, and an increase in demand for rentals from Baby-Boomers who are downsizing to rental apartments to reduce costs and maintenance.

What do you think the Bay Area rental market will look like in the year ahead? What was the average rental rate in San Francisco/Bay Area? What was the percent change Y-o-Y for this market? How does the trajectory of the wider Bay Area relate to other key markets nationwide?

The most recent RENTCafé Apartment Report shows that the average rent in the city of San Francisco is $3,448, a 2.4% y-o-y increase, the second most expensive city for renters in the U.S., surpassed only by Manhattan, NYC. The average rent in the Bay Area overall is $2,414/month, up by 3.6% y-o-y. Driven by above average rent increases in the North Bay area, rent prices in the San Francisco Bay are expected to continue growing at a rate higher than the national growth rate, while apartment rents in the city of San Francisco are likely to rise slower than the national rate of increase in the year ahead.

Generally, the perception is that the Bay Area is still attracting a lot of millennials looking to rent as a short-term solution. What are the trends that will influence the renter profile in the Bay Area in the next 12 to 18 months? What demographic factors will influence the Bay Area renter pool in the year ahead?

The Bay Area is seeing an increase in its renter population aged 55 or older, as tens of thousands of empty-nest Baby Boomers are entering the rental market by downsizing to apartments. A big part of the demand over the next few years will be coming from this generation. Additionally, Millennials remain the biggest share of renters in the area fueling the demand for rentals for the foreseeable future.

The Bay Area and San Francisco has a healthy job market with lots of highly-educated renters seeking to locate here. What are some of the benefits that renting presents in the local market?

Considering the prices of homes for sale in the Bay Area’s largest cities, for many, renting is the only option. But renting also has its benefits, it offers flexibility, access to more amenities, the option to share a space with roommates to save money, and a more walkable location for young professionals who want to be closer to work.

What do you predict for the trajectory of rental inventory rates (in the Bay Area, San Francisco and other key markets)? To what degree is rental inventory constrained?

The San Francisco rental market has not been as active as other key markets in terms of building new supply, constrained by a mix of factors, including rent-control legislation and zoning restrictions. Based on the amount of new development coming down the pipeline this year, we don’t predict a huge boost in inventory in the near future.

What factors will continue influence people’s decisions to rent versus buy in key U.S. markets moving forward?

The cost of rent versus the price of homes for sale is probably the main factor, and another big one is the availability of affordable homes. These factors vary in every market, so it’s hard to generalize. At this point in time, rent prices in Seattle may be high, but home prices are even less affordable and growing faster than rents. All things being equal, we think housing demand in Seattle will be focused on rentals for the foreseeable future.

What do you predict for rents across unit types? What does the data show about renters’ preferences for different unit types?

This is typically difficult to measure because it fluctuates and it varies depending on the density of the market. However, based on where we saw the highest jumps in prices over the last year, nationally, one and two-bedroom units have been the most popular in the last 6-7 months, versus the first half of last year when studios and one-bedrooms recorded the fastest price increases. Overall, one and two-bedroom units represent the largest share of the rental stock in the U.S.

What are some of the challenges involved in keeping a pulse on the ever-changing rental landscapes across the U.S., markets where things happen quickly? How do you ensure that the data reflects current trends in the rental market?

The rental market is influenced by economic changes, population demographic changes, news releases, and the state of other areas of the housing sector. Through research and analyses, we make a continuous effort to keep up to date with industry trends.

We also look at historic trends in the multifamily industry, for which we rely on comprehensive actual rent data from surveys conducted by our sister company Yardi Matrix, covering all multifamily properties of 50-plus units across 128 markets in the United States.

Why do you think smaller markets saw the greatest rent increases Y-o-Y? To what degree are rental trends geographically-specific (e.g. coastal vs. more central markets)? Which rental markets do you think will see increased activity/change in the year ahead?

Smaller markets were slower to recover after the housing crisis than larger markets, they’ve had much less activity in terms of new developments, and are now dealing with rising prices. In terms of geography, we typically see higher prices in denser coastal cities with strong job markets and higher demand for housing. For the year ahead, we’ll be watching out for increased activity in mid-sized and small markets.

Looking ahead, what will be some of the factors that will face the U.S. housing market in the short- and long-term? Issues of affordability will obviously remain a key concern—how will renters and property managers approach this growing concern?

Affordability is the main concern, of course. In pricey urban centers, renters are finding that they need to move further out in order to find more affordable prices. Not that this is a new idea, [since] location has always been the mantra of real estate, for both rentals and homes for sale.

Demographic changes are also a factor, i.e. millennials forming families and needing more space and baby boomers moving into apartments. Property managers are trying to attract renters with concessions or more targeted amenities that address specific needs, depending on the demographic they are serving.

Is there anything else that you can tell me about national/regional trends in the rental market that will come to the forefront in the coming months?

We’ll be keeping an eye on national trends for the year ahead, as most experts agree that demand will remain strong, while a high volume of new apartments is expected to hit the market this year. It will also be interesting to see how the effect of the country’s hottest markets—like San Francisco, Sacramento, Seattle, Portland

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