Rents Rising Fastest Among Low-End Apartments

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The Editors's picture
rents rising fastest among low cost apartments

Median rents are rising faster for the least expensive multifamily rental homes.

According to a Zillow study, only a small portion of all new apartments are at the low end.

Instead, most new apartment construction is at the top of the market, where luxury units command top prices from wealthy renters. This leaves a shortage of rental housing for those who cannot afford the top rents.

 Zillow analyzed median rents in 15 major housing markets across the country and found that median rent for the least expensive third of apartments was outpacing the overall rental market.

 

Rents adjusted for inflation are 64 percent more expensive today than in 1960

Others reporting this same trend include:

  • Rents, adjusted for inflation, are 64% more expensive today than in 1960, according to an Apartment List analysis of U.S. census data, The Wall Street Journal reported.
  • Rent growth, adjusted for inflation, has outpaced the rise in income (18%) by more than 350%.
  • Higher construction costs, regulations preventing the development of more supply and increased demand as more people move to the most expensive cities are all factors that have driven rents higher. A smaller middle class has also reduced the number of renters able to afford higher rents.

The trend is especially prevalent in California. In Sacramento, for example, the price of the least expensive rental homes rose 33 percent over the last year, while overall median rent rose just 7 percent.

Cheaper apartments were more in line with overall rent appreciation in Denver and Seattle. The least expensive rentals rose 9 percent in Denver over the past year, while the rental market as a whole rose 7 percent. In Seattle, the least expensive rental homes rose 14 percent and the entire rental market rose 9 percent.

"There's a growing divide in the rental market right now,"  Zillow Chief Economist Dr. Svenja Gudell said in a release. "Very high demand at the low end of the market is being met with more supply at the high end, an imbalance that will only contribute to growing affordability concerns for all renters. We're simply not building enough at the bottom and middle of the rental market to keep up with demand. As a result, these segments are becoming very competitive, as both new renters look to find their first place and existing renters get shut out of homeownership because of extremely limited for-sale inventory. Apartment construction at the low end needs to start ramping up, and soon, in order to see real improvement."

A Harvard study earlier this year found that the number of families spending more than one-third of their income on rent rose to 40 million in 2014 and that 11.4 million renter households had to pay more than 50% of their income in rent. The report also found the median rent for new units increased to $1,381 in 2015, 70% more expensive than overall median rent. The pricier rents, the report said, are effectively forcing some families out of the market.

rents continue to climb despite low inflation

In Tampa, Fla., 93 percent of apartments built after 2014 were among the most expensive. In Miami, 69 percent of listed new construction was among the most expensive and just 11 percent was among the least expensive.

Charlotte, Denver and Seattle had the smallest percentage of low-end construction built after 2014 -- just 4 percent of new construction in Charlotte was among the least expensive third of rental homes and only 7 percent in Denver and Seattle.

 

Metropolitan Area

Zillow Rent Indexiii (ZRI) among Low-End Apartments

Low-End ZRI YoY Change

ZRI Among High-End
Apartments

High-End ZRI YoY Change

Entire Multi-family Rental Market ZRI

Entire Multi-
family Rental Market ZRI YoY Change

Percent of New Construction in Low-End Since 2014

Percent of New Construction in High-End Since 2014

Los Angeles-Long
Beach-Anaheim, CA

$2,029

27.5%

$3,176

20.8%

$2,370

6.7%

17.2%

53.5%

Chicago, IL

$1,155

6.4%

$1,947

-1.0%

$1,580

1.0%

8.5%

79.2%

Dallas-Fort Worth, TX

$1,020

16.3%

$1,712

8.0%

$1,324

5.5%

11.2%

63.5%

Philadelphia, PA

$1,102

17.9%

$   1,792

6.7%

$1,234

3.0%

14.2%

68.9%

Washington, DC

$1,551

7.7%

$   3,229

25.7%

$1,904

1.0%

13.3%

55.7%

Miami-Fort Lauderdale, FL

$1,482

14.2%

$   2,367

6.3%

$1,626

5.3%

10.7%

69.4%

Boston, MA

$1,908

17.3%

$   2,684

-1.0%

$2,178

3.9%

16.8%

68.4%

San Francisco, CA

$2,456

24.6%

$5,944

29.3%

$3,026

9.2%

n/a

56.3%

Seattle, WA

$1,263

13.7%

$2,409

20.8%

$1,763

8.7%

7.4%

65.4%

San Diego, CA

$1,754

21.7%

$   2,992

21.9%

$2,101

6.1%

11.2%

64.2%

St. Louis, MO

$693

5.5%

$1,059

8.1%

$936

0.4%

25.3%

61.6%

Tampa, FL

$934

13.1%

$1,513

16.6%

$1,196

5.7%

n/a

93.1%

Denver, CO

$1,164

8.6%

$2,060

13.9%

$1,604

6.5%

6.6%

60.0%

Charlotte, NC

$868

12.0%

$1,535

14.0%

$1,195

3.4%

4.2%

71.3%

Sacramento, CA

$1,186

32.7%

$1,946

28.4%

$1,350

7.4%

n/a

n/a

rents are rising fast in one Portland area suburb

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