Some Bright Spots in the Rental Housing Landscape

The news has been grim for rental housing landlords and investors lately, a group that has become accustomed to the asset class’s high valuations and steady rental growth.  Now, though, a few bright trends have emerged that highlight its reputation for sound fundamentals. 

Multifamily Renewals

Renewal rent growth is bucking last year’s downward trend, according to Yardi Matrix. Growth nationally increased by 30 basis points to 9.3% year-over-year through January. Rents rose slightly in March with the average going up $3 to $1,706. This short-term increase points to many renters able to afford increases, their demand not decreasing as much as was feared and their desire to move to pare monthly costs hampered however by limited options available in many metropolitan areas.

Renewal rates have also been very consistent over the past year nationally and on metro levels. However, there is some expectation that might change as more supply becomes available if units are not absorbed.

Two noteworthy trends in multifamily apartment housing reflect changes in the Lifestyle and Rent by Necessity segments. The biggest change in March was for the Lifestyle niche, in which most metros posted negative growth a month ago. Nineteen of the top 30 metros recorded increases that month and only 10 saw monthly decreases. In the RBN segment, 21 metros recorded monthly increases while eight saw decreases. According to Yardi, the bifurcation between these two remains high in Seattle, a sign that high costs put demand on lower-priced units. 

Single-family BTR housing

Single-family build-to-rent housing (SFR) has become a more significant player in terms of numbers and communities. It picked up most noticeably in the first quarter of 2023 as more institutional investors and large home builders entered the market. Its appeal is due to multiple factors: some renters looking for a home to buy aren’t able to find one or can’t afford a down payment or rising interest rates, so they shift to houses they can rent; some like the idea of renting since they gain more square footage than in comparable apartments and also their own backyard but they don’t have to spend time or money on home maintenance; and some are attracted by the clubhouses that are often included in the community, which provide extra space, sometimes programmed activities and a readymade pool of neighbors to socialize with.

In this sector, single-family rental rates increased in March by $5 to $2,079. The year-over-year increase fell, however, by 80 basis points to 2.8%, and occupancy rates decreased in February by 10 basis points. At the same time, there are challenges to consider. Tight capital markets conditions pose issues for SFR owners, some of which have announced layoffs and/or cutbacks in acquisition plans, according to Yardi.