Potential ‘Turning Point’ for Rental Housing?

A decade of “unprecedented” growth in the rental housing sector may be approaching an end, the Harvard Joint Center for Housing Studies reported.

“Fewer new renter households are being formed, rental vacancy rates have risen and rent increases have slowed,” the Center’s America’s Rental Housing report said. It noted rent growth has started to slow in most markets across the country.

Rental markets may have reached a “turning point,” the report said. Multifamily construction rebounded nearly four-fold from the 2009 market trough to 400,000 units in 2015–the highest annual level since the 1980s. But after moving sideways in 2016, the pace of multifamily starts has fallen 9 percent through October. “The slowdown has occurred in markets across the country, but is most evident in metros where multifamily construction had been strongest,” the report noted.

In addition to slowing construction, other metrics also suggest the rental boom may be cresting. RealPage, Dallas, reported apartment vacancy rates rose over the past year in 94 of the 100 metros it tracked.

“Apartment rents are also increasing more slowly in all three segments of the market,” the Joint Center said. “This deceleration has appeared in all four regions of the country and in large and small markets alike.”

Meanwhile, multifamily financing remains healthy. The Mortgage Bankers Association found multifamily mortgage debt outstanding increased by nearly 20 percent in 2015-2016, rising to nearly $1.2 trillion in early 2017. Federally backed debt rose 25 percent while bank and thrift lending increased 29 percent. And multifamily loan delinquencies remain extremely low, the Joint Center noted. 

After a decade of broad-based growth, renter households are increasingly likely to have higher incomes, be older and have children, the Joint Center said, noting apartment developers responded to this shift in demand by building high-end apartments and fewer new rental units affordable to low- and moderate-income renters.

“As a result, part of the ‘new normal’ emerging in the rental market is that nearly half of renter households are cost burdened,” the report said. It suggested two ways to address this affordability challenge: expanding subsidies for the nation’s lowest-income households and fostering more private development of moderately priced housing.