More Apartment Construction Heads to Low Rent Suburbs

A page has turned in the apartment rental market. Low-rent suburbs, for the first time in at least a decade, are now seeing more apartment construction than higher-rent suburbs. And rent growth in low-rent areas is modestly higher than in more affluent neighborhoods.

That is significant both for renters in areas where average effective rent is below the market average and for the nation’s housing stock as a whole. “Low rent suburbs make up about 58% of total existing units over the last decade,” noted RealPage Analytics recent report that compares suburban markets by price points.

By comparison, in higher rent suburbs multifamily makes up just 27% of housing. In urban cores multifamily represents only 14.5%, but rents in this submarket are usually well above their home market average. However, more than 85% of apartment properties across the country fall within suburban submarkets, the report found.

Historically, new supply has skewed toward suburban markets with higher rent. Some 40% of market-rate multifamily housing has been built in these suburbs, while urban cores received 25%. In both cases, deliveries were disproportionately higher than each submarket’s share of the nation’s apartment stock.

The recent deviation toward more construction in low-rent suburbs from the historical trend began in 2021. “The [3Q] 2023 figure shows that close to 50% of market-rate multifamily units delivered to lower rent suburbs,” the report stated. At the same time, higher rent districts attracted 35% of new apartment construction and urban cores17.5%. By comparison, in 3Q 2013 their respective shares were 35.4% low, 39.2% high, and 25.4% urban.

The report attributed the change to several factors, including land prices that affect supply. “As land prices increase in more established (and in turn, higher rent) suburban areas, then development moves further out,” it noted.

Rents have also been impacted. “Rent growth in low rent suburbs has outperformed higher rent suburbs (and urban core) counterparts over the past 12 months – albeit to a modest degree. The increased volume of supply in areas with lower rental rates could be one of the driving forces behind the slowdown in Class B rent growth over the past 12 months. Class B units tend to be more concentrated in lower rent submarkets. Indeed, lower rent suburbs are seeing Class A rents grow by 1.0% as of November 2023, versus 0.3% for the submarket grouping on aggregate.”