Multifamily rents in the United States reached a new high in October, signaling strength and resilience across the industry but also provoking a backlash among advocates for renters and their allies in state governments as political pressure and rent control rise as well, according to the latest report from Yardi Matrix.
The multifamily market continued its strong performance into the fourth quarter, as demand remains almost insatiable, the report says. However, it adds, “We think rent-control measures are counterproductive.”
Some highlights of the latest report
- Multifamily rent growth inched upward in October, as the average U.S. multifamily rent increased by $1 to $1,476. Year-over-year rent growth remained at 3.2 percent.
- Although subject to some seasonality by metro, the multifamily market continues to consistently produce strong rent growth.
- Of the 30 major markets covered by the report, 17 saw year-over-year rent growth of at least 3.3 percent and only two (San Jose and Houston) were much below the 2.5 percent long-term average.
- The extended period of good performance has produced one bad side effect: legislation enacted in three states to limit rent growth and pressure to act in more states.
- After a period of below-par growth in housing stock, the country needs more units built, but rent control moves the needle in the opposite direction.
Year-Over-Year Rent-Growth Leaders
The fourth quarter is often a slower time for rent growth, but continuous demand and a slowly growing economy will likely keep rent growth above its long-term average, the report says.
Phoenix, at 7.9 percent, and Las Vegas, at 6.4 percent, remain at the top of our rankings.
However, three Southeastern markets that have absorbed significant amounts of new supply have recently re-entered the top 10. Raleigh, at 5.1 percent; Charlotte, at 4.8 percent; and Nashville, at 4.6 percent have some of the strongest demographic demand for multifamily housing in the nation, but high deliveries had weighed on rent growth for many of the past few years.
However, absorption remains very strong, and rents are growing accordingly.
Political pressure and rent control
Multifamily sector performance has been stellar for years, with the average U.S. apartment rent up by 32 percent since January 2012, according to Yardi Matrix. That success has created pressure for legislation to put a lid on rent growth.
Rent growth means the number of rent-burdened households is rising. More than 20 million renter
households spend over 30 percent of income on housing, and 80 percent of renters and 63 percent of owners making less than $30,000 are cost-burdened, according to the Joint Center for Housing Studies at Harvard University.
- So far this year, Oregon, New York, and California have passed measures to limit rent increases, and more than a dozen other states are considering laws.
- Rent control has proven to be a counterproductive solution in that it reduces investment and limits badly needed new supply.
Owners also used to be able to increase rents in conjunction with capital improvements to properties.
Now, however, landlords can only get rent increases on $15,000 of improvements over a 15-year period. If landlords can’t recoup capital spent on improvements, they won’t make the improvements or will do it with lesser-quality materials. This can all lead to deterioration of units.
Legislatures need to address the affordable-housing crisis, but the best solution involves making it easier to build units that low- and middle-class households can afford. That means reducing exclusionary zoning, allowing more density, alleviating red tape and fees for developers, and subsidizing developments.
Yardi Matrix is a business development and asset management tool for investment professionals, equity investors, lenders, and property managers who underwrite and manage investments in commercial real estate. Yardi Matrix covers multifamily, industrial, office and self storage property types. Email firstname.lastname@example.org, call 480-663-1149 or visit yardimatrix.com to learn more.
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