Apartment Rent Growth Up Again in 2015

Rents for new residents of U.S. apartment communities rose 4.8 percent last year, reported MPF Research, Carrollton, Texas.

This marks six consecutive years of rent increases at or above the 2.7 percent long-term norm, leading to a 22.5 percent total price increase, MPF said. Typical apartment rent across the country’s 100 largest metros now stands at $1,244 per month.

The rent increase meant that America’s 43 million renter households spent $535 billion on rent in 2015, up $19 billion from 2014, said Zillow, Seattle. It said two factors drove the increase: rising rents and 1.8 million new renter households.

“Continuing strong rent growth reflects the fact that product availability remains unusually low,” said MPF Research Chief Economist Greg Willett.

Willett said fourth- quarter occupancy registered at 95.8 percent, up from 95.5 percent a year ago and 92 percent when the recession led to many move-outs in 2009.

But Ryan Severino, senior economist and director of research with Reis, New York, noted that the national apartment vacancy rate actually increased in both of the last two quarters. “This marks the first time that has happened since the fourth quarter of 2009 and truly represents a turning point in the apartment market,” he said. “With construction outpacing demand the national vacancy rate should slowly drift higher over the coming years.”  

Willett said delayed deliveries due to labor shortages in some building trades are starting to affect the apartment market’s overall performance. “Pushing back completion dates two or three months is translating to a longer pre-leasing period for new properties coming on stream,” he said. “Those new projects are finally opening with better-than-expected occupancy, and that occupancy premium helps boost rent growth.”

MPF reported 232,168 units delivered across the country’s 100 largest markets in 2015, well under the 300,000 units initially scheduled. As a result, new supply dropped 8 percent in 2015 from 2014’s tally of 252,000-plus units, rather than jumping the expected 20 percent. Properties now under construction total 443,240 units, with 311,511 of those units currently targeted for completion in 2016. Willet said next year’s new supply could top 2015’s total by as much as 34 percent.

“That many additions would likely lower occupancy slightly and slow rent growth moderately,” Willett said. “However, if 20 to 30 percent of 2016’s scheduled deliveries are delayed until 2017, it wouldn’t be especially surprising to see another year of occupancy and rent growth like 2015.”