• The Places Where Apartment Rents Are Rising the Most — and Who’s Paying Them — May Surprise You

    Multifamily asking rents in the United States have expanded by an average of 11% year over year in 2021, the single highest increase ever recorded. However, the impact from that record growth varies a great deal by market and price point, a CoStar analysis has found.

    A handful of metropolitan areas are experiencing year-over-year rent growth upwards of 20%, including Phoenix, where asking rents rose 22.4%; Tampa, Florida, with rent growth of 24.8%; and Austin, Texas, which is up 20.4%. It’s important to remember, however, that these figures are somewhat exaggerated as a result of comparisons with the uncharacteristically weak performance in 2020 due to the outbreak of COVID-19. That year, national year-over-year asking rent growth remained relatively flat, at just 0.5%.

    Comparing the actual trajectory of apartment rents throughout 2020 and 2021 with the expected growth that would have occurred if rents had continued to increase at the average rate recorded from 2016 through 2019 paints the strong year-over-year rent growth seen in 2021 in a new light. The average national asking multifamily rent today is $88 dollars a month higher than if rent growth had continued at pre-pandemic rates.

    But the observed performance differences across metropolitan areas and market price points can be extreme.

    At one end of the spectrum, we have several Florida markets that tended to record the highest gaps between actual and projected rents. The group is led by Palm Beach, where apartment rents came in $380 higher than projected. Tampa was next with $264 above rent projections, followed by Fort Lauderdale at $264. Orange County, which also rode the wave of noteworthy rent acceleration over the past year, was the only non-Florida market to make the top five list of over-performing markets.


    Large coastal California cities led the bottom five markets in which current actual rent growth was lower than projected by pre-pandemic growth rates. Minneapolis was the lone outlier, geographically, with average asking rents $47 lower than projected by pre-pandemic growth rates.

    The overall changes in rent by market, however, obscure what were frequently much different stories across property types. Among the higher-quality and pricier four- and five-star properties, for instance, swings in rent levels tended to be much more extreme. Florida's Palm Beach led the positive-growth category with an average of $509 per month more in rent than projected using pre-pandemic growth rates. Orange County was only slightly behind at $446 more than projected. At the other end of the spectrum, however, San Francisco’s most expensive units were an average of $293 cheaper per month compared to prior trends.

    Th
    e jumps in rents for mid-quality, three-star properties lagged the most expensive units but still showed a meaningful impact on overall market rent growth. Again, Palm Beach led the field with three-star rents registering an average of $299 more per month in rent than would have been expected from pre-pandemic growth rates. Just to the south, Fort Lauderdale’s three-star property rents also rocketed upward over the past year, reaching $247 over trend.

    And while Tampa’s mid-priced units were up $203 per month, that translates into an extra $2,436 per year in rent for those renter households. If the average three-star Tampa renter household spent 25% of its yearly income on rent in 2020, the 2021 increase would consume almost all of the income gain, assuming a 4.8% increase in wages this year as household income would rise by $2,700. The increased cost of housing for these renter households would leave less than $300 to cover rising prices of other goods and services.

    It was an entirely different story in California for San Francisco and San Jose, where renter households in three-star properties have reaped significant monthly savings over the past year. Average asking rents were down $226 per month in San Francisco and $209 lower in San Jose relative to pre-pandemic trends. This translates into a yearly savings on rent of $2,712 in San Francisco and $2,508 in San Jose.

    Going into the pandemic, the lowest priced apartments had the tightest vacancy rate at 5.2%. And over the past two years, this vacancy has declined even further to just 3.9%. Yet, rents in this lower tier have not seen the same outsize increases as in the higher priced properties.

    Nationally, one- and two-star rents are an average of $7 cheaper than projected by pre-pandemic rent growth rates. In many cases, renter households in the least-expensive apartment units are paying slightly less than projected, and in a handful of markets are actually paying much less. The San Francisco Bay Area markets stand out for asking rents in the one- and two-star properties averaging $69 to $152 lower than projected by rent growth trends at the end of 2021. Even in Palm Beach, one- and two-star asking rents were just $50 higher than projected, compared to the market’s $299 rent premiums recorded among three-star properties and $509 among four- and five-star properties.

    While top-line rent growth nationally hit historical high levels in 2021, the impact to renter households varied significantly across both markets and price points. For markets with outsize overall rent growth, such as Tampa, the financial impact has been felt the most in the highest priced point units by the households that, for the most part, are able to more easily absorb the increases.  While one- and two-star properties did see price gains, the increases were not as onerous and appear for the most part to have been within the means of the tenant base to afford based on average household income levels. 

    Source: www.CoStar.com