Following some months of moderate rent growth, the average U.S. multifamily rent rose by $12 in June 2019 to $1,465, according to the latest Matrix Monthly report by Yardi Matrix. At the same time, year-over-year rent growth rose to 3.2%, up by 40 basis points from May’s seasonally adjusted 2.9% year-over-year rent growth.
Rents have risen 2% so far in the second quarter, and 2.6% overall this year. The number of renter households rose to an all-time high in the first quarter of 2019, rising by more than 600,000 to 43.8 million, and Yardi does not anticipate demand for multifamily will slow any time soon.
The economy has added 172,000 jobs per month this year, below the average of 200,000 jobs per month that has held since 2010. However, Yardi still considers this solid growth given the lateness of the economic cycle and an unemployment rate below 4%.
Las Vegas led the nation in YOY rent growth at 8.4%, followed by Phoenix at 8.1% and Sacramento at 5.3%, driven by strong migration and modest new supply. Austin (4.9%) and Nashville (4.1%) remain in the top 10 despite large new development pipelines. The only two metros that fell below 2.5% growth YOY were Miami at 2.2% and Houston at 0.8%.
The gap between luxury Lifestyle rent growth and market-rate Renter by Necessity (RBN) rent growth has shrunk to 90 basis points. Affordability issues have intensified for working-class renters, while wages have risen quickly for Lifestyle renters.
Rents rose by 0.7% on a trailing three-month (T-3) basis at the national level, up 20 basis points from the previous month. All of the top 30 markets in Yardi’s ranking experienced rent increases over this period, led by Seattle at 1.3%, Boston at 1.2%, and Portland, Ore., at 1.1%. Miami and Houston had the weakest growth at 0.3%.
Lifestyle rent growth has outpaced RBN rent growth in 17 out of 30 cities on a T-3 basis. Yardi notes that rent control legislation has recently passed in New York and Oregon, largely affecting older RBN stock, and predicts that an expansion of rent control may limit RBN rent growth and narrow the gap between rent growth for luxury and market-rate properties.
Houston’s YOY and T-3 rent growth has lagged behind other major metros in the midst of what Yardi considers “an exceptional period for the multifamily markets” and even underperforms slow-growth Midwestern markets and high-cost Northeast cities. Oil prices are unlikely to have had an impact on rents, as they have remained relatively stable since the 2014-15 slump. The city’s supply of jobs has grown by 2.5% on a T-6 basis, and its new completion rate has fallen to 1.2% through the middle of the year.
Yardi attributes these low rates to a supply and demand mismatch in terms of quality, the cumulative effect of new supply over time, and the effects of Hurricane Harvey. Houston added 70,000 new units in properties of 50 units or more between 2013 and 2018, and the city currently has the lowest occupancy rate of the top 30 metros at 92.6%. Occupancy has dropped sharply in areas heavily affected by the hurricane, including Addicks Reservoir (-5%) and Fort Bend County (-3.1%).
Ultimately, the metro is expected to remain healthy in the long term but will require more time to absorb its inventory growth.
