Here's Where Multifamily Rent Growth is Happening

After many reports of showing and even falling rent growth, analyses from two different sources about strengthening rent growth in two types of market sectors would seem like good news. And it is for many owners and operators, but in the short term. Over a longer period, the question is how long and how pervasively increases can be maintained.

CoStar data shows that monthly asking rents were up 18% from $1,435 at the end of 2019 to $1,691 in the first quarter of 2024. In some ways, rent growth has been slowing and even reversing, as GlobeSt.com has repeatedly reported. But when considering the compound annual growth rate (CAGR) of the Consumer Price Index of primary residence rents, since August 2021 has remained over 4%. It hit 11.1% in September 2022.

Rents have gone up, and as CoStar wrote, “Breaking out rent increases by the different price points reveals that residents of three-star apartments have absorbed the highest rent growth increases nationally, with an average increase of 21% over the past 17 quarters. Following that, renter households in more affordable properties, rated one and two stars, had the second-highest average rent increase at 17%.”

Addressing the Sun Belt in 2022, CoStar wrote, “The region’s demand-to-inventory ratio fell sharply from 5.7% in 2021 to 0.5%, coinciding with remote workers returning to offices and a 14.8% annual rent increase by the end of 2021, diminishing the area’s affordability.” But new construction has continued at a remarkable pace, putting some downward pressure on rents since 2022.

In the meantime, according to CBRE, downtown-adjacent inner ring renter demand has been high and they have seen 3% rent CAGR, “outstripping lower-density suburbs and office-dominated Downtowns.” The demand is due to more people having to return to their offices for work and the appeal for shorter commutes. Downtown rent seems to be about 1.7% or 1.8% and suburban around 2.4%.

The Joint Centers for Housing Studies of Harvard University says that 22.4 million households in 2022 were rent-burdened, meaning paying at least 30% of their income on rent, up from 20.4 million in 2019. “Alarmingly, the number of severely cost-burdened renter households — those spending more than half of their income on housing and utilities — also hit an all-time high of 12.1 million in 2022, a full 1.5 million households above pre-pandemic levels.” This is where the question of sustainability comes up. Rent growth has been an enormous factor in inflation. The higher the rents keep climbing, the more inflation there is and the less chance of getting interest rate relief. At the same time, the more someone has to pay for properties like multifamily, and the higher property taxes and utilities and insurance rise, the more income the owners need.

What all this data ultimately says is that the country and industry need stability. Unfortunately, they don’t provide insight in to how to achieve it.