Apartment Rent Growth Accelerates Despite Slow Deliveries

Multifamily rents grew for the ninth straight month and are now up 3 percent year-over-year, reported Zillow, Seattle. The median monthly rent now equals $1,483.

Rents are up year-over-year in 49 of the nation’s 50 largest markets with Milwaukee as the only exception, the Zillow Real Estate Market Report said. “Nationally, rent growth has not been this strong since 2016 when pressure in the rental market spurred record numbers of multifamily permits,” the report said.

Zillow Director of Economic Research Skylar Olsen noted record numbers of new apartment deliveries has not saturated the market with new supply. “The reality is that demographics and general economic health continue to keep the pressure on,” she said. “Yes, we saw rents fall in 2018, but that was driven by the concentration of supply in urban areas and large buildings at higher end price points competing against each other.”

Olsen said the rental market still craves affordable units across the country. “Show me a three-bedroom apartment in a small building located near good schools and I’ll show you an older millennial with kids ready to move in,” she said.

Marcus & Millichap said consumer preferences support ongoing apartment performance trends. Its Multifamily Research Brief noted the homeownership rate for people 35 and under dropped 110 basis points to 35.4 percent during the first quarter as lifestyle changes and evolving preferences steered housing demand toward multifamily rentals. “Strong job growth and tight unemployment have bolstered household creation, enabling more people to move out on their own,” the report said. “Robust demand and the slowing pace of inventory growth will support rent increases while keeping apartment vacancy low.”

The tight job market is keeping Class C multifamily vacancy especially low, Marcus & Millichap said. “Unemployment and apartment demand continue to move in sync as individuals with a range of experiences and education levels find opportunities,” the report said. “The correlation is especially strong for Class C units, which serve the broadest renter pool.” The second quarter ended with a 3.7 percent unemployment rate–the lowest in 50 years–and a 3.5 percent Class C apartment vacancy rate, a nearly 20-year low. “High renter interest and limited availability are propelling [Class C] effective rents up at a class-leading pace,” Marcus & Millichap said.