August Rents Continue Up But Construction Delays Slow New Units

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The Editors's picture
August rents up but construction delays could impact future rents

Delays in building new multifamily housing led to a flat August for U.S. rents, as a critical shortage in construction workers is the primary cause, according to a release.

The national average rents rose $1 from July’s figure to $1,352, according to a survey of 121 markets by Yardi Matrix. Rents were up 2.4% during the month on a year-over-year basis, data taken from the Yardi Matrix report.

The gain in August, while modest, kept alive the streak of rent increases for every month in 2017.

Slowing growth in rents came amid signs that the delivery of new housing units is slowing.

While the economy is holding up well and multifamily demand remains strong, fewer than 10,000 new units were delivered in July and August, compared with the average monthly delivery of 14,500 in the first quarter of the year.

Immigration policy hurting construction worker hiring

A critical shortage of construction workers is the principal reason for the slowdown

 “The primary reason for the delays is the critical shortage of construction workers, which is not a new trend but is being exacerbated by the Trump administration’s more restrictive immigration policies.

“As a result, we are reducing our forecast for new deliveries in 2017 to 300,000, considerably fewer than the 360,000 we had expected and only slightly more than the 281,000 that came online in 2016. We now believe that the supply cycle will peak in 2018, with 360,000 new units delivered.

Where delays are having an impact and implications for rents

Delays in apartment deliveries have implications for rents, especially in metros in which rent growth has decelerated as the number of new units exceeded absorption.

  • One example would be Austin, where completions as a percentage of stock are among the highest in the country and rent growth slipped to 0.3% year over year as of August, despite little letup in demand.
  • Another case is San Francisco, where rent growth dipped from double digits in early 2016 to 1.6% year over year as of August.
  • Or Nashville, a high-demand market where rent increases declined to 0.9% year over year through August due to one of the nation’s busiest construction pipelines.

Rent growth in these metros has rebounded in recent months, with solid gains on a T-3 basis in San Francisco (0.5%), Austin (0.4%) and Nashville (0.3%). While it would be simplistic to attribute all of the recent performance to a single factor, clearly the delay in new deliveries is having an impact.

The top year-over-year rent gainers in August were Sacramento, Calif., Seattle, California’s Inland Empire, Phoenix and Dallas.

Houston a special case

As has been the case for some time, Houston merits special mention. The Texas metro has underperformed due to the struggling energy sector and surging supply. Now it faces a test in the recovery from Hurricane Harvey.

 It’s far too early to assess the damage, but if the past is a guide, multifamily fundamentals could benefit as damaged stock is taken off the market and residents scramble for places to live, according to Yardi Matrix.

Get the full report here.

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