How Long Will Multifamily Rent Increases Last?

From getting back on track at the end of 2020 to strong growth in 2021, according to the National Multifamily Housing Council, the ability to raise rents has been on a recent tear in multifamily.

But how long can that keep going/?

Several factors have supported the rise. One is historically high costs of buying homes, in large part due to low inventory during the pandemic and a long-term lack of sufficient house construction. Even low interest rates can only do so much when necessary down payments skyrocket. Many people have no choice but to rent.

Then there are rising wages, with a labor shortage pushing employers to pay more, according to Federal Reserve chair Jerome Powell as quoted by Business Insider. “Wages moving across the spectrum consistent with inflation and productivity is a good thing,” Powell said.

However, the current growth isn’t stellar in historical terms and there’s no guarantee it can continue, as data from the Federal Reserve Bank of Atlanta suggests.

So how long will the run last? Shahin Yazdi, principal and managing director at George Smith Partners thinks it could continue for at least the next two to three years because of costs to operators.

“As owners will see, for an existing building, the costs going up are utility costs and any time a unit turns, the cost to renovate the unit is higher as well,” Yazdi tells GlobeSt.com. “Everything under the sun is going to cost more.”

“Rents are going up in big cities because demand is back,” Yazdi adds. “Unless there is some sort of global event, like a pandemic or recession, you’re just not going to see those rents go back down, unless you solve the supply issue. Unless home buying can become more affordable for people, it’s going to make it even harder.”

It might seem that pricing pressure would eventually build a ceiling, with people seeking less expensive housing and, so, reducing demand. 

“The thing about lower housing rents and grades is that nobody ever builds them,” David Perez, COO of CARROLL, tells GlobeSt.com. “Unfortunately, if someone cannot pay there are many who will as the biggest issue is lack of supply in the market within the more affordable spectrum.”

Also, Perez says that in a larger context, the picture looks different. “At the end of the day, yes, rents are growing at a historic level in recent months but when compared on a year-over-year basis nationally, the growth rate is in line with historical averages,” says Perez. “The trajectory of the growth the market is seeing this most recent quarter is a result of the economy recovering along with a lack of supply from the shutdown.”