By Jack Stubbs
Both regionally and nationally, the rental market is in a state of flux, and many online platforms provide users with the ability to track changes occurring in the industry.
RENTCafé is one such platform that offers clients the ability to track and find available rental apartments in real time, submit rental applications and receive approval notifications on rental properties.
On January 31st, 2018, RENTCafé released a study that examined nationwide trends in the rental market. We spoke with Nadia Balint, real state writer for RENTCafé, about some of the key findings from the report and what they reveal about regional and national trends driving the rental market.
Can you elaborate on some of the key findings from the report? What do you think accounts for some of the widespread changes in rent growth? Were there any statistics that were particularly surprising or unexpected from the report?
Our January Rent Report focuses on the fact that 89 percent of the nation’s biggest cities have seen rent increases over the year, with the largest increases in small and mid-sized markets. Some of the most interesting changes we’ve noticed at the beginning of the year have to do with fast-growing rents in recovering markets. There’s also increasing pressure on rents in cities which have been slow to build and also in cities located outside large urban areas that are feeling a ripple effect of high prices.
What do you think accounts for the increase in national rents in 2018? Where do you think rental rates will go in the year ahead (M-o-M and Y-o-Y)? What other large-scale trends does the data represent demographically? Generationally?
These national increases are a continuation of last year’s steady growth trend, sustained by an improving economy, more jobs, and an increase in demand for rentals from Baby-Boomers who are downsizing to rental apartments to reduce costs and maintenance.
What do you think the Seattle rental market will look like in the year ahead? The report found that the average rent in Seattle was $1,972, a 5.1 percent change Y-o-Y. How does the trajectory of the Seattle relate to other key markets nationwide?
We expect Seattle to be among the cities with above average rent increases in 2018. It is one of the most active markets in the country, and has exceptional demand for housing and a stronger job market than many other key markets.
Generally, the perception is that Seattle is attracting a lot of millennials looking to rent as a short-term solution. What are the trends that will influence the renter profile in Seattle in the next 12 to 18 months?
Even though Millennials represent the majority of renters in Seattle, there’s been a spike in renters over the age of 55 in the last decade that are likely to drive some of the demand for rental living and for specific amenities in the near future.
Seattle has a healthy job market with lots of highly-educated renters seeking to locate here. What are some of the benefits that renting presents?
People don’t think in terms of spending 30 years in one home anymore. Young people willing to move whenever and wherever the next job opportunity will be. Renting offers that flexibility. It also offers the convenience of a better location, as most renters prefer to be closer to work above anything else. Living in a rental community also offers them opportunities for socializing [and] to be around like-minded people.
What do you predict for rental inventory rates (in Seattle and other key markets)? To what degree is rental inventory constrained?
Seattle is dealing with supply and affordability issues for some time now. Delays in construction have been noticed throughout the country last year, due to a labor shortage, which only adds to the problem. Key markets like Seattle, with limited room to sprawl, are looking for solutions like upzoning and diversifying the types of developments that are being built.
What factors will continue influence people’s decisions to rent versus buy in key U.S. markets moving forward?
The cost of rent versus the price of homes for sale is probably the main factor, and another big one is the availability of affordable homes. These factors vary in every market, so it’s hard to generalize. At this point in time, rent prices in Seattle may be high, but home prices are even less affordable and growing faster than rents. All things being equal, we think housing demand in Seattle will be focused on rentals for the foreseeable future.
What do you predict for rents across unit types? What does the data show about renters’ preferences for different unit types?
This is typically difficult to measure because it fluctuates and it varies depending on the density of the market. However, based on where we saw the highest jumps in prices over the last year, nationally, one and two-bedroom units have been the most popular in the last 6-7 months, versus the first half of last year when studios and one-bedrooms recorded the fastest price increases. Overall, one and two-bedroom units represent the largest share of the rental stock in the U.S.
What are some of the challenges involved in keeping a pulse on the ever-changing rental landscapes across the U.S., markets where things happen quickly? How do you ensure that the data reflects current trends in the rental market?
The rental market is influenced by economic changes, population demographic changes, news releases, and the state of other areas of the housing sector. Through research and analyses, we make a continuous effort to keep up to date with industry trends.
We also look at historic trends in the multifamily industry, for which we rely on comprehensive actual rent data from surveys conducted by our sister company Yardi Matrix, covering all multifamily properties of 50-plus units across 128 markets in the United States.
Why do you think smaller markets saw the greatest rent increases Y-o-Y? To what degree are rental trends geographically-specific (e.g. coastal vs. more central markets)? Which rental markets do you think will see increased activity/change in the year ahead?
Smaller markets were slower to recover after the housing crisis than larger markets, they’ve had much less activity in terms of new developments, and are now dealing with rising prices. In terms of geography, we typically see higher prices in denser coastal cities with strong job markets and higher demand for housing. For the year ahead, we’ll be watching out for increased activity in mid-sized and small markets.
Looking ahead, what will be some of the factors that will face the U.S. housing market in the short- and long-term? Issues of affordability will obviously remain a key concern—how will renters and property managers approach this growing concern?
Affordability is the main concern, of course. In pricey urban centers, renters are finding that they need to move further out in order to find more affordable prices. Not that this is a new idea, [since] location has always been the mantra of real estate, for both rentals and homes for sale.
Demographic changes are also a factor, i.e. millennials forming families and needing more space and baby boomers moving into apartments. Property managers are trying to attract renters with concessions or more targeted amenities that address specific needs, depending on the demographic they are serving.
Is there anything else that you can tell me about national/regional trends in the rental market that will come to the forefront in the coming months?
We’ll be keeping an eye on national trends for the year ahead, as most experts agree that demand will remain strong, while a high volume of new apartments is expected to hit the market this year. It will also be interesting to see how the effect of the country’s hottest markets—like San Francisco, Sacramento, Seattle, Portland, and Denver—is spreading further out and putting pressure on smaller nearby markets.