Despite the ongoing epidemic and a year-long nationwide eviction restriction, there has never been a better moment to be a large apartment-building landlord.
According to Real Page, a rental-management software business, which evaluated more than 13 million professionally managed units, national asking rentals jumped 10.3% in August on an annual basis. That was the first double-digit increase in more than 20 years of data collection, and rent increases in certain hot cities were far higher than the national average.
“The rent growth that we’re seeing in places like Phoenix and Las Vegas and Tampa, it’s obviously unprecedented,” said Jay Parsons, deputy chief economist for Real Page. In each of these cities, rents increased by more than 20% year over year in August. Rents increased by more than 20% in smaller markets such as Boise, Idaho, and Naples, Florida.
Analysts claim that rapidly rising rents are due to a number of variables. Younger adults who stayed with their families the previous year are now renting their own apartments, often as they prepare to return to work. Workers in the middle class who have been priced out of the hot property market have no choice but to pay higher rents. Meanwhile, the limited expansion in new apartment supply can't keep up with growing demand.
In August, apartment occupancy rates, a critical indicator for landlords determining how much they can raise rent, reached a new high of 97.1 percent. According to Real Page, household incomes for new renters in professionally managed properties have also reached a fresh high of more than $70,000 per year. Last month's repeal of the federal eviction restriction is likely to tighten landlords' hands even further.
According to Green Street, a real-estate securities advising firm, multifamily property values have climbed by 13% since the pandemic began. According to data firm Real Capital Analytics, more money is being invested in apartment buildings than in any other sort of commercial real estate.
Only a few analysts foresaw this outcome 18 months ago. When Covid-19 struck, the unemployment rate in the United States jumped to about 15%. According to surveys, a rising number of renters are falling behind on their payments, and eviction laws at the federal and municipal levels typically prevent these tenants from being replaced. Rent collection uncertainty sent shivers through debt markets, prompting fears of a liquidity crunch in multifamily real estate.
Most segments of the multifamily market now appear to be in good shape. Despite the fact that more renters are returning to cities, suburban markets are still hot, thanks to record-high home-sale prices that keep more people in rental housing. Others have relocated and are now working from their homes.
Multifamily mortgage lending has recovered to pre-pandemic levels. According to Jamie Woodwell, vice president of research and economics at the Mortgage Bankers Association, a real-estate lending industry group, many landlords have taken advantage of ultralow interest rates to refinance their mortgages, increasing their cash on hand and lowering their mortgage payments. Much of the pandemic lending was driven by the government-backed mortgage programs, he said. But other lenders have since ramped up their multifamily business.