Traditional drivers of multifamily rent growth were upended during the pandemic, first as shelter-in-place policies led to massive job losses and migration, and then as the employment rebound and loosening of restrictions caused demand to skyrocket, Yardi Matrix writes in a June bulletin.
Paul Fiorilla, Director of Research, Yardi Matrix, and Casey Cobb, Senior Analyst in the bulletin examine the implications for multifamily rent and growth going forward and employment growth vs job growth.
The report points out that traditional rent drivers have been disrupted twice due to the pandemic. First was the massive jobs losses early, sheltering in home and a migration toward Sun Belt cities. Then came booming pent up demand and rent increases across the country.
“A question facing the industry is what this means going forward. The pandemic created circumstances that are unlikely to be repeated, especially since the 15 percent year-over-year growth in asking rents nationally (and upwards of 25 percent in some metros) cannot be sustained for very long,” Fiorilla and Cobb write.
How will rent drivers evolve?
The report points out that with the pandemic impact, “We found a huge shift between the first year (April 2020 to March 2021) and second year (April 2021 to March 2022). Some of the difference can be attributed to the short-term dynamics of the pandemic—i.e. large gateway metros were locked down more tightly than metros in the Sun Belt, and economic activity suffered.”
However they point out that some of the changes of the last two years may have started out as pandemic-related “but are likely to remain as part of the landscape for years or even decades into the future. Migration is an example. The Sun Belt has been growing more rapidly than the Northeast or Midwest for decades, but the flow of households from coastal/urban downtowns to suburbs and smaller warm-weather markets was exacerbated by COVID-19 and the growing work-from-home paradigm.”
Driving factors of rent growth and regional demand
Among the many factors are:
- Will office workers continue to have the flexibility to work from home?
- What does it mean for employers to locate where employees want to be?
- Will wage growth support rising rents?
- Can municipalities fight NIMBYism to increase supply growth?
- How many metros will fight back against record-high rent growth by implementing counterproductive rent control or other regulatory measures?
“Currently rents are growing about 10 percentage points faster than wages, which means that rent growth is all but certain to moderate. When and how much the moderation occurs, and how that plays out among metros, will be determined by the performance of the economy, migration and regulation,” Fiorilla and Cobb write.
About Yardi Matrix:
Yardi Matrix researches and reports on multifamily, office and self-storage properties across the United States, serving the needs of a variety of industry professionals. Yardi Matrix Multifamily provides accurate data on 18+ million units, covering more than 90 percent of the U.S. population. Contact the company at (480) 663-1149.