Affordability Still an Issue Even as Rental Prices Remain Flat

Don’t expect significant increases in apartment rents in the first half of 2021.

Brad Dillman, chief economist at Cortland, an Atlanta-based multifamily investment and management firm, tells Ellen Chang, writing for ApartmentGuide, that stable rental prices should help those who have lost jobs temporarily or had their hours slashed.

But in the second half of the year, Denver, Atlanta, Phoenix and Raleigh-Durham, could likely see an increase in rent prices.

Dense urban areas should continue to struggle with weaker rental prices and drops in average rents, according to John Loper, an associate real estate professor at the University of Southern California. He says suburban sunbelt areas should see small increases in rents, but the big question will be how many people return to areas as the pandemic eases up.

Edward Mermelstein, CEO of One and Only Holdings, a New York-based luxury real estate investment consulting firm, doesn’t expect to see upward momentum in the urban market early in the year. He tells Chang that price declines will continue in urban areas through Q1.

Other firms have also noted the struggles of urban markets. In a recent report, Apartment List says San Francisco rents have fallen 26.7% since March. Seattle saw a 22% rent drop since March. It was followed by Boston (-20.6%), New York (-19.9%) and Washington DC (-15.3%). 

Even if rental prices generally remain flat, demand for affordable housing will continue to rise.

While the rental market will lose some residents to homeownership, housing prices increases are likely to continue, according to ApartmentGuide. That should preclude many renters from making the jump into the home buying market.

Mortgage rates dropped sharply in 2020, but Dillman says they will likely increase in the latter half of 2021. Those rate increases could hamper the demand for home buying and increase the demand for single-family home rentals and apartments.

“Given the undersupply of housing, estimated by ourselves and others, the country may see a renewed focus on housing affordability narratives as rent growth pressures resume next year,” Dillman told Chang.

As eviction moratoriums are lifted, eviction could be a significant issue in Q1 or Q2, according to Loper. However, with about 90% of rents being collected, he says only 10% of rental stock has eviction potential. Demand for a one-bedroom apartment in suburban areas will be incredibly high, according to Freddie Zamani, CEO of EcoSmart Builders, a Calabasas, CA-based construction company.