U.S. Rent Growth Flatlines As Massive Flood Of New Apartment Supply Finally Takes Its Toll

After a slow and steady march higher in the wake of the 'great recession' nearly a decade ago, a note today from Rent Cafe shows that average rents in the United States may have finally stalled in July at $1,350 per month after posting a paltry sequential gain of just 0.1%.  

Rents are still steadily climbing across the country, but that growth is finally slowing – and in a big way. In July, national rents grew a meager 0.1% over the month and just 2.6% from the same period in 2016, according to recent data from Yardi Matrix.

 

This national slowdown is thanks, in large part, to the huge influx of new apartments that has hit the scene in the past year – as well as the thousands more expected by the end of 2017. This year is expected to mark the biggest jump in apartment construction in the last two decades, with nearly 347,000 new units entering the market – a 21% increase over last year’s numbers.

 

Of course, this should come as little surprise to our readers as softening apartment rents, particularly in the massively over-priced, millennial safe-spaces of New York City and San Francisco, have been a frequent topic of conversation for us over the past several quarters...here are just a couple of recent examples:

As we pointed out several months ago, just like almost any bubble, stagnating rents are undoubtedly the symptom of a massive, multi-year supply bubble in multi-family housing units sparked by, among other things, cheap borrowing costs for commercial builders.  Per the chart below, multi-family units under construction is now at record highs and have eclipsed the previous bubble peak by nearly 40%.

Goldman

 

But, while rents are certainly slowing – and construction is indeed playing its part – the impact isn’t spread evenly across all markets as Rent Cafe notes that 64% of the new supply is limited to the nation’s top 20 metro areas.  Therefore, it's not terribly surprising that the worst performing rental markets so far this year also happen to be the most expensive and the ones that have attracted the most capital for new developments. 

Incoming apartment supply isn’t just lowering national average rents; it’s also making some of the country’s most historically pricey markets just a little bit more affordable. “The huge number of apartments entering the market benefits all renters – but especially those in the country’s more expensive areas,” said Doug Ressler, Senior Analyst for Yardi Matrix. “More apartments mean more choices – and, ultimately, more bargaining leverage for the renter.”

 

Take Manhattan, for example. The exclusive NYC borough has long been the most expensive place to live in the nation, but thanks to a recent 3.1% dip in rents year-over-year and the huge inventory expansion, it’s slowly becoming more accessible to the region’s growing population. With more than 7,000 units to be delivered in 2017, rents in the area now run $4,054 – a huge downturn from the $4,154 rents seen at the start of the year.

 

With so many new units hitting the market, Ressler says some communities are forced to offer serious amenities in order to stay competitive. “These new apartment communities often come with upscale amenities, including 24/7 fitness centers, yoga studios, rooftop farms and pet spas,” he said. “Some even offer concessions, like a month of free rent or free gym memberships. These perks aren’t limited to overly-popular markets such as NYC or San Francisco, either. Minneapolis is also seeing tons of new, top-notch apartments added to its rental market, as is Nashville and Orlando.”

 

Meanwhile, areas with stronger job markets and better overall affordability are still seeing demand growth which, combined with a lack of capital investment, is driving rents considerably higher.

Midland, Texas, is a prime example of this. Texas has added more than 319,000 jobs over the last year, and unemployment is at record lows. Midland came in with the second-lowest unemployment rate in the state, with just 3.5% of residents without jobs in June. This healthy economy has led to serious population growth over the past few years, and more than 25,000 people have moved to the area since 2010. Apartment construction has been unable to keep up with this growth – and the subsequent rising demand – and rents have skyrocketed in the city. The average Midland apartment now costs $1,180 per month – a whopping 18.1% higher than this time last year. Nearby Odessa is also seeing a similar problem. The city’s rent has grown 13.4% over the year, hitting $1,013 in July.

 

Finally, here are the top 10 most and least expensive rental markets in the U.S. at the end of July 2017.  To our complete lack of surprise, New York and California continue to dominate the expensive list while Southern and Midwestern markets continue to provide the best value...perhaps this is why all those domestic migration studies show a mass exodus from the cities on the left to the cities on the right?  Just a hunch...

Comments

Mazzy wisehiney Tue, 08/08/2017 - 21:30 Permalink

As it SHOULD be.  Prices should naturally go down as supply increases.If you look at cities/towns/counties that don't limit development, prices are low.  If you look at coastal enclaves where development is tightly controlled due to politics, rent and housing prices are artificially high.  Of course those in power want it that way.Competition also helps.  In the Mid-West for example there's nothing stopping counties surrounding metro areas from competing with each other for residents. 

In reply to by wisehiney

JMT Mazzy Wed, 08/09/2017 - 02:04 Permalink

Lol!!!  Compete for residents?? Sure -- as long as they are white or asian, under the age of 35, gay or straight with no children and look like the children of either Mitt Romney or Donald Trump.  Landlords know that mommy & daddy will be able to pay the rent if the tenant cannot for some reasonand where is development 'tightly controlled' to prevent or slow white flight (which is the real reason such NIMBY laws were created in the first place).  In NYC such zoning regulations were eliminated by Bloomberg and now the current mayor and the entire NYC area (not just NYC but the surrounding suburbs) is seeing the strongest economic boom in history.In the midwest many are leaving and moving to either the NYC metro area or the SF bay area so that is the reason for lower prices in those areas not because of 'NIMBY laws" created in the 1960s. 

In reply to by Mazzy

Kidbuck Mazzy Wed, 08/09/2017 - 06:56 Permalink

The rental market's held up by section 8 just as the food market is held up by farm subsidies and food stamps. Many luxury condos and apartments are now section 8 just as many steaks and lobsters are bought with food stamps. This allows the FSA to drive nicer cars than me, go to nicer night clubs than me, buy nicer dope and booze than me. Blackstone and Cargil et. al, own the congress that permits this.

In reply to by Mazzy

nmewn Storm-Clouds Tue, 08/08/2017 - 21:29 Permalink

DeBlasio really needs to do something about the high rent the po folk pay in NYC. Maybe sometime after he fixes the subway system the vorkers use, that are taxed, to subsidize the rent, the po folk have to pay.Its all very intricate, interconnected, tightly managed & regulated by the brightest lights ya know ;-)

In reply to by Storm-Clouds

JMT nmewn Wed, 08/09/2017 - 02:10 Permalink

The NYC area (not just NYC but the surrounding suburbs) is experiencing the strongest economic boom in history.  This 'tax increase' is less than 1% and people are already complaining saying how it will cause people to 'move' out of the city..also the high rent is not because of rent regulations (which are slowly being phased out ) but because people want to live in the city (and the surrounding suburbs) because there are many well paying white collar positions that start at or near $100,000 a year

In reply to by nmewn

Silver Savior Tue, 08/08/2017 - 21:05 Permalink

I am not believing any of this shit until apartments are $250 a month and houses 4-600. That's all they are worth and having rents like these would put lots of money in people's pockets to spend. Costs for maintaining property like fees and the like should drop way down too. Just think if your house rental is hardly worth anything you should be paying next to nothing in property taxes. Wouldn't you love that. You could even do the right thing and pass that saving along to your poor renters you are swindling every month. Hint hint! You will be judged later if you don't.

order66 Tue, 08/08/2017 - 21:11 Permalink

Only thing that matters is if these fucking dip buyers in the 2460 area in ES_F can get run the fuck out. Then things might get interesting.

booboo Tue, 08/08/2017 - 21:11 Permalink

Wood Frame three and four story Mixed Use are filling every nook and cranny around here. Bars, coffe shops and cafe's on one and fuck spaces on the top three. Old money keeps their concubines up there too.

Felix da Kat Tue, 08/08/2017 - 21:47 Permalink

And so why is there a glut ? The building boom began last summer with Hillary closing in on the oval office along with her promise to bring in 650,000 Syrian refugees to fill those now vacant apartments using (but of course) taxpayer dollars. The builder-rush was on. This was going to be easy pay-dirt for landlord/owners. For me, this is reason number #192 as to why America can thank its lucky stars Trump won.

goldoverbtc Tue, 08/08/2017 - 21:59 Permalink

The ones in Lubbock and in Oklahoma can be attributed to the falling oil prices.  When oil was neart $100 they couldnt build apartments fast enough for workers.  Now those apartments stay vacant for a long time until the rent comes down because the oil cash influx has fled the areas where the rig workers used to live.www.escapeamazon.com 

Golden Showers Tue, 08/08/2017 - 22:01 Permalink

Well for those of us who will find it more expedient to live under bridges in the gutter as we retire and go off into the wilderness to meditate for the rest of our years, here's a brilliant facet of Stan Kubrick's evil genius to consider.EVIL GENIUS. Amazing trickster. Brother of all that is good and true. Watch close and listen.https://www.youtube.com/watch?v=oWLByMshYIUIf you could compress the last hundred years into one minute of film, Stan could; with many allusions to what else? ... The Moon. And why would Stan ever think the moon was important?On another level the other night I awoke from a dream about a young woman I was friends with in high school and college who went to Parson's in NYC and ended up living in LA. And just because the rents were high doesn't mean people don't get what they want. I had another good friend who went to San Fran Homeless. He got a job and found a place. My rent in PDX was 425 split in half for a 400 square foot two room grandmother suite but it was great. Especially when you could go into the house that was only $1200 more a month back 12 years ago. When you sell your car, get a bus pass, and have everything you want everywhere you go, it's not so crazy. But that was before '08.I would never ever want or care to be near NYC or LA or SF or the Midwest or Hotlanta and I couldn't care less what fools there will pay for a pot to piss in. As long as there's mother fuckers sending their dumb ass daughters to B.U. who don't know how to boil water and never shopped for thier own selves at a store and who's mommy and daddy own a 3 story acre in Bergen County and the house next door, money is no option!High rent. What the fuck? I don't see anyone not caughing it up, unless they don't want any.The real problem is the other way around. All these California cash out assholes coming here and acting like spoiled children is what I'm saying. Fuck these prius driving holier than thou check book bitches. Little new rich people from the land of California don't get no respect here. All they do is act helpless and special and I fucking hate them. 

chosen (not verified) Tue, 08/08/2017 - 22:10 Permalink

I think in the Bay Area, the soaring rents drove out the poor and middle income earners, and they are not coming back.   Of those who stayed, some are moving out of the Bay Area naturally.  With few coming in and new apartments coming on line, demand is off.  As for landlords eating it, I am glad it is happening to such a fucked-up bunch of human beings.

Cabreado Tue, 08/08/2017 - 22:31 Permalink

As a new equilibrium approaches, come hell or high water, those who pretend to know how it'll all go down are... likely part of the problem.And if you think the housing (rent/buy) situation doesn't need to get back closer to "median" levels, well... bring on the hell part.

USofAzzDownWeGo Tue, 08/08/2017 - 22:27 Permalink

This does not apply to San Diego. Rent is going up and you can hardly find a decent deal anywhere. Hell, even the more inland you go it doesn't get any cheaper. Rent prices here are insanely expensive and demand for rental openings is not going down. 

aliens is here Tue, 08/08/2017 - 22:38 Permalink

A quater mile from where I live there are new upscale apartment for rent. A 2 bedroom will run you $1500 a month and a 3 bedroom is $2300. People have to be going out of their minds to pay that much for an apartment.

Chauncey Gardener Wed, 08/09/2017 - 00:08 Permalink

No one seems willing to talk about the alarming trend to have property management companies come in and take over complexes and jack up the rent. Here, like othe areas, two bedroom units that used to rent for $950/month are now going for 1695/month with ZERO improvments, because that's what the "market will bear." That's what the new apartments go for, so they justify it by matching the price. People with kids who are not upper-middle class, simply can't afford to live here anymore. Fifteen dollar minimum wage? That will NEVER be a "living wage" for renters. I've been a landlord, and this is just raw, naked greed. Period.