Multifamily Rents Rising But Not as Fast as They Should

Typically, apartment rents start to rise at this time of year, according to Apartment List. And while they are for the fourth month in a row, according to the site’s June 2023 rent report, the pace is slower than average and “is flattening out at a time of year when it’s normally picking up steam.” Blame “sluggish demand and increasing supply” which are “keeping prices in check.”

Year-over-year growth was down to 0.9% in May—lower than April’s 1.8%. May’s was the lowest point since March 2021, below the 2018 to 2019 2.8% average, and could go slightly negative in the next few months.

The vacancy index is 7%, already past pre-pandemic levels, and rising. Additional supply is a big factor, as the number of privately-owned multifamily units in 5-plus buildings under construction is currently 959,000, as government data indicates. That’s a record number since 1970, although compared to population, June 1973 had the most per capita units under construction.

“Rents increased in May in 76 of the nation’s 100 largest cities, but at the same time, 48 of the top 100 cities are currently logging negative year-over-year growth up from 40 cities last month,” the report said. “Scottsdale, AZ saw the nation’s sharpest month-over-month rent declining in May (-0.9%), continuing a broader slowdown in the Phoenix metro.”

The slow rent growth is a sign of the continuing cooldown that started in the second half of 2022, the site says. They added that annual growth is below the pre-pandemic average, although Apartment List’s data only goes back to 2017, so it offers limited comparative insight. Also, the site noted that year-over-year growth will likely keep falling at least through the end of summer. “In fact, it’s now looking increasingly likely that year-over-year growth could even dip into negative territory in the months ahead,” they wrote.

The estimates are based on advertised asking rents but on the Census Bureau’s American Community Survey and its findings on median rent statistics for recent movers. Then Apartment List then “extrapolated forward” the figures “to the current month using a growth rate calculated from real-time lease transactions that take place on our platform.” Likely because the Census Bureau numbers will have some inherent time delay. “We use a same-unit, repeat-transaction analysis similar to Case-Shiller’s approach, comparing only units that are available across both time periods to provide an accurate picture of rent growth,” the site explains. “Our approach also corrects for the sample bias inherent in private listing sources to produce results that are representative of the entire rental market.”