Apartment rents are rising at their fastest pace in years as the U.S. economy creates jobs and spurs demand for rental housing.
By Rick Friedman, for USA TODAY
By Rick Friedman, for USA TODAY
Nationwide, rents started edging up last year after several years of little growth or even declines, market researcher Reis says. It predicts apartment rents will jump 4.3% this year, marking the biggest annual increase in four years. MPF Research, which also monitors apartment rents, expects them to rise more than 5% this year, says Greg Willett, MPF Research vice president.
Job growth is driving much of the increase. As more people get jobs, people who doubled up in homes during the recession, especially younger workers, move out on their own, says Ryan Severino, Reis senior economist. Many of those workers are choosing to rent rather than to buy, because of dropping U.S. home values and tight lending standards that make it harder to buy homes, Severino says.
Lack of construction is also helping rents. This year, just 40,000 new apartment units are expected to be added to the U.S. supply, Reis says. That's down from about 130,000 new units each year for much of the past decade.
Apartments make up about half the nation's rental supply, Willett says. Single-family homes and condominiums account for the rest.
MPF and Reis both say San Jose and New York City are the strongest rental markets. In the first quarter, rents in those markets were up 4.6% and 4.4%, respectively, from the same period last year, Reis' data show. Nationwide, rents rose not quite 2% from the first quarter of 2010 to the same quarter this year, Reis says. Vacancies fell 1.8 percentage points to 6.2%.
Other markets seeing first-quarter year-over-year rent increases in excess of 3% included suburban Virginia and Maryland; San Francisco; Rochester, N.Y.; Portland, Ore.; and Denver, Reis says.
Real estate broker Richard Gonzalez of Realty World sees the market tightening in San Jose as homeowners who lose homes to foreclosure or short sales become renters. "They're starting over and need to rent," Gonzalez says.
Las Vegas was one of the few metropolitan areas in which rents fell in the first quarter, Reis and MPF say. They dropped almost 3% year-over-year.
Las Vegas has the highest foreclosure rate in the nation, and investors are buying homes there and turning them into rentals. The city hasn't seen apartment rents rise since the third quarter of 2008, Reis says.
Increasing demand and lack of new rental supply will boost rents for the next couple of years, predicts Paul Dales, economist at Capital Economics. Eventually, though, as rents rise and home prices drop, "homeownership becomes more valuable again," says Jim O'Sullivan, chief economist at MF Global.
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