More New Apartments, But Rent Keeps Rising

Effective annualized rent growth nationally through August was 5.12 percent, making August the seventh straight month in which the metric was 5.0 percent or higher. Occupancy rate was 95.45 percent as of August.

New units delivered in 2015 should exceed 230,000, making 2015 one of the highest years ever for new units.

Below are a few key markets.

New units

Market                   Projected 2015

Houston                17,379

Dallas                     16,045

NY Metro               14,681

Wash DC               14,015

Austin TX               9,979

Texas may experience some easing of rental cost and apartment demand if oil prices drop as predicted. Layoffs announced recently by several oil companies are likely to affect the oil patch cities.

Despite this potential change, rental costs and occupancy continue to increase. Here’s why:

  1. Job growth is tending to offset the robust building so rent costs should continue to grow. New units are absorbed by the newly employed. Millennials are lagging in first-time home buyer activity and renting instead.
  1. 45 percent of millennials think that owning a home is necessary to “live the dream” and fit in with society. Millennials are very cautious about purchasing right away and are staying in the rental game for longer. Millennials are also delaying getting married and having children.
  1. Although employment has improved in the past 3 years, a large proportion of underemployment (low paying careers, high college debt) makes it extremely difficult for millennials to save up to purchase a home.
  1. Boomers are taking up a bigger percentage of rentals than in the years prior to 2008.

Strongest rental markets are the Bay Area of California (San Francisco and Oakland), Northwest (Seattle and Portland), Denver, Texas (Dallas, Houston, Austin) cities, D.C. and New York. Portland, Oregon is the number one market in the US for rental growth rate.

Midwest cities are also experiencing upward trends in occupancy and rent growth. The improving job situation is contributing to demand, and since there was less investment in new units, supply has not increased much. While Kansas City will deliver about 4,000 new units this year, Cincinnati, Cleveland, Detroit and St. Louis are adding fewer than half that many. All of these cities are above 94 percent occupancy.