By Meghan Hall
The past decade has seen a massive shift in the nation’s multifamily market, with boomers aging out, millennials growing up, and high-end, luxury product becoming the focus for many developers and landlords. One thing, however, has been made clear by a recent report released by commercial analytics website RENTCafe: that all factors seem to be contributing to nation-wide increases in rent. According to RENTCafe’s most recent report studying multifamily trends across the decade, the national average rent has increased by $390, or 36 percent over the past ten years, with rents rising fastest in the nation’s largest cities.
“A plurality of factors came together to create a high impact; first of all, the increase in student loans and the general cost of living meant less money to be spent on housing. With home prices rising faster than rental rates, the multifamily sector became increasingly attractive for Americans,” explained RENTCafe Research Analyst Michaela Buzec. “What further increased renting’s popularity was the growth of the job market and the concentration of a multitude of employment opportunities in job hubs. The new industries allowed for the rise of the digital nomads, which created a new demand among people: flexibility of housing.”
The report found that in both the Bay Area and Seattle, rents rose some of the fastest in the nation. In Seattle, average rents in 2019 reached $2,124, an increase of 77 percent over the past decade. Cities in the Bay Area recorded similar increases: San Francisco’s average rent increased by 70 percent, reaching $3,680, while San Jose’s average rents rose 74 percent, hitting $2,697 per month. Oakland’s rent skyrocketed; growing 108 percent in ten years.
RENTCafe also notes that the number of American renters passed 100 million this decade, hitting 108.5 million in 2018, up from 99.4 million in 2010. Renters now make up 34 percent of the general population, the highest number since the 1960s, when about 36 percent of Americans were tenants. As a result, renters became the majority population in 20 cities, and renters make up more than half of the population in 82 cities that RENTCafe analyzed.
The reason so many Americans are renting, notes RENTCafe, are due to numerous market fundamentals, from booming economies to lagging waging growth—particularly when compared with rent growth—to more demographic shifts. For example, renting has increased in popularity among older renters such as Baby Boomers, with aging renter households increasing by 32 percent over the past decade. At the other end of the spectrum, millennials began living on their own for the first time, driving up demand for rental product in job hubs and college towns.
“This has been the decade in which Millennials matured and moved from being students to being professionals. The first part of the decade saw a higher concentration of millennial renters gathering in metro cores, where the majority of jobs are; this led to an increase in the rental rates of principal cities’ apartments…,” stated Buzec. “On the other hand, as baby boomers started populating the senior cohort, they drove the trend back to metro cores. As they became empty-nesters, they downsized from homeownership to renting, because of the flexibility and convenience of living in a smaller apartment, but in a more connected area. Their rental decisions partially mirrored one another, and their impact has been on apartment supply and rental rates, as well as the demand for specific amenities to which developers had to answer.”
Additionally, fewer American families are having children later, impacting where households live and whether they choose to rent or buy.
However, RENTCafe notes that there is one major factor that is unlikely to wane anytime soon, despite economic considerations: more and more Americans are choosing to rent more than ever. The number of high-earning Americans—classified as those earning more than $150,000 annually—increased by 157 percent since 2010, indicating that renting is now a lifestyle option.
“We see increases amid not only younger people, but also seniors, and not only among mid-income Americans, but also a growth of the number of high-earning renters,” said Buzec. “This tells the story of a change in attitude which created a change in the market.”
As a result, 2.4 million units were delivered this decade, producing a construction boom that had not been seen in decades. High-quality and Class A apartments became commonplace; with Class A units accounting for 40 percent of all units constructed this decade. RENTCafe notes that because renters are now doing so by choice, developers are increasingly catering to their needs, incorporating amenities and activities in their developments more than ever.
“With the rise in demand for rental apartments, the attitude of both developers and authorities changes,” said Buzec. “There is a need to bring more units to the market in order to meet the demand and prevent the upsurge of rental rates.”