Apartment rents are continue to rise across the country, but particularly on the West Coast. According to a new report from Rent Café, apartment rents are up 3.1% nationally, but growing West Coast cities are exceeding the national growth. San Diego apartment rents are up 5% and rents in Phoenix have increased 6.8%. Las Vegas is also seeing substantial rent growth, up 6.2%, according to the report. These three cities are on the list of the top five markets for apartment rent growth.
“Strong economic metrics and healthy demand for rentals from both older renters who are postponing homeownership due to rising home prices and from the increasing number of young renters entering the market continue to drive apartment rates up,” Nadia Balint, the author of the report, tells GlobeSt.com.
While the rent growth is significant, it is not the dramatic rent growth of years past. However, Balint says not to take that as a sign that the market is decelerating. “Although these are not the booming growth rates we were seeing about two years ago, the market is by no means decelerating,” she explains. “Occupancy rates are increasing and the demand holds. Rents have been rising steadily since bottoming out last fall, when the year-over-year growth rate was 2.2%, posting a 3.1% increase on a year-over-year basis in August this year, the highest rate we’ve seen in 18 months. This is certainly affected by the high demand typical during the peak rental season, but it is also the product of a broader issue. Apartment deliveries are seeing some delays, with new apartment completions falling below the initial estimates for 2018, which puts pressure on prices.
Los Angeles, on the other hand, is trending below the national average. This year, rents have grown 1.1%, according to research from Apartment List. However, rents in Los Angeles continue to be more expensive than the national average, at $1,750 compared to the national average of $1,180. “The L.A. metro has seen a decent number of new units hit the market recently,” Chris Salviati, housing economist at Apartment List, tells GlobeSt.com. “This added supply seems to be exerting some downward pressure on rents. Furthermore, although the local economy remains strong, the high cost of living may be discouraging potential new residents from moving to the area, leading to slightly softer demand.”
In Los Angeles, rent growth has slowed as a result of new construction, and it will likely continue as the construction pipeline continues to grow. “The likelihood of this trend continuing depends primarily on the pace of new construction,” adds Salviati. “If there is sufficient new construction to keep pace with demand, rent growth will likely continue at a moderate pace, but if new construction slows down while demand remains high, rent growth is likely to pick back up.”
In general, the mid-sized markets in the West as well as the South are seeing the most rent growth nationally, and population growth in these mid-sized cities is driving the rent growth. “Mid-sized metros in the South and West are the rent growth leaders right now, supported largely by very healthy demand,” says Balint. “These metros have seen the largest population in-migration in the last 5 years, motivated by economic growth and overall better housing affordability compared to large coastal markets. Phoenix, Las Vegas, Orlando, Inland Empire, and Tampa have been a recurring presence in the top for highest rent increases this year.”
From a national perspective, rents are continuing to head up, thanks to solid fundamentals and job and wage growth. “Job growth, low unemployment, and increasing wages are all good signs for the housing industry, generally. Domestic migration patterns typically follow the money, in the sense that people are in search of a good-quality life, which includes quality affordable housing,” explains Balint. “Whether the markets that are presently seeing high influxes of population are responding appropriately and timely on the supply side is going to either temperate or exacerbate rent growth in the coming year.”
While the fundamentals look great, they will only remain strong has long as there is demand, according to Balint. Is demand begins to wan, rents will follow. “Although we are seeing a sustained upward trend right now, it will only continue as long as demand holds,” she says. “Economic factors as well as the price evolution of homes for sale are going to have a say in how long we will see rent growth. In the short term, rent prices are expected to slow down slightly as we are now getting past the peak rental season, but given the circumstances previously discussed, we believe this rate of growth has some staying power.”
In L.A., however, the outlook isn’t as positive. Salviati estimates that the Los Angeles market has already experienced its strongest rent growth of the year. Typically, fall and winter are slower months for rentals. “The summer is generally the busy season for renting, with activity tapering off in the fall in winter months,” he adds. “With that busy season nearing its end, I would not expect to see significant rent increases through the remainder of the year.”
By Kelsi Maree Borland