From the Record:
Living in an apartment? Expect your rent to go up again.
Renting has gotten increasingly expensive in the past five years. The average U.S. rent has climbed 14 percent to $1,124 since 2010, according to commercial property tracker Reis Inc. That’s four percentage points faster than inflation, and more than double the rise in U.S. home prices in the same period.
Now, even with a surge in apartment construction, rents are projected to rise an additional 3.3 percent this year, to an average $1,161, according to Reis. While that’s slower than last year’s 3.6 percent increase, the broader upward trend isn’t going away.
“The only relief in sight is rents in the hottest markets are going to go up at a slower pace, but they’re still going to go up,” said Hessam Nadji, chief strategy officer at Marcus & Millichap, a commercial real estate services firm.
The main reason: More people than ever are apartment hunting.
Young people who have been living with their parents are increasingly finding jobs and moving out. Rising home prices are leading many longtime renters to stay put.
In addition, most of the new apartments coming on the market are aimed at affluent tenants and carry higher-than-average rents. That’s especially true in cities where new buildings are going up in urban core areas, which means builders need to recoup higher land and development costs.
During the last recession, many workers who lost their jobs moved in with relatives or took on roommates. About 32 percent of U.S. adults were living with roommates or adult family members in 2012, up from 27.4 percent in 2006, according to Zillow, an online real estate firm.
Stepped-up hiring has begun to reverse that trend. About 2.8 million more Americans have jobs than 12 months ago.
“The share of young adults with jobs has climbed in the past year, and that will help many of them move out of their parents’ homes,” said Jed Kolko, chief economist at online real estate firm Trulia. “Most of them will be renters first.”
Developers added 238,000 apartments nationwide last year, a 14-year high, with an additional 210,000 expected this year, according to Marcus & Millichap.
In theory, more apartment construction should help bring down rents because landlords would compete for tenants. But 80 percent of new complexes, Nadji estimated, are high-end projects aimed at renters willing to pay a premium for amenities like gourmet kitchens and concierge service.
How much of a premium? The average rent for apartments completed last year was $1,721. That’s 46 percent higher than the average apartment rent for older units, according to Marcus & Millichap and data provider MPF Research.
“There’s very little new supply being added anywhere else,” said Nadji, “so that’s why there’s so much pressure on rents and very little choice for the average renter.”