Dive Brief:
- Apartment construction is at a 10-year high, with 320,000 rental units expected to come online in 2016, a 50% increase in production from 2015, according to a RentCafe report.
- Rental rate growth in the cities with the most new apartments is expected to slow to 4.4%, down from the 6.3% gain in 2014.
- There are currently 1,400 apartment projects underway in the country's largest metros, and Texas is expected to add the most rental units (69,000) to its inventory this year in Houston, Dallas, San Antonio and Austin. These Texas markets represent 22% of all units expected to be completed this year.
Dive Insight:
RentCafe projected that New York City (21,000), Los Angeles (20,000) and Washington, DC (18,000), are also set to add a significant number of apartment units in 2016. RentCafe reported that 51% of all new units are one-bedroom, followed by two-bedrooms at 37.5%. Even though rents hit an all-time high in June of $1,213 on average — and first-quarter occupancies were 96.1% — the glut of new units is prompting property owners to offer lower rents and other concessions as the competition for tenants to fill all these new units heats up.
San Francisco, always struggling with affordability, will add 9,500 new units this year, according to RentCafe, which city officials hope will stem the seemingly unfettered rise in rents. In an effort to increase the number of available rentals in the city, San Francisco zoning officials are allowing building owners to convert unused spaces like utility closets and storage areas into rentals. This move is expected to add 14,000 rentable units to the city's inventory.
The post-housing-crash rental market has been booming since 2012, as renting becomes an increasingly popular option for those who don't qualify for a home or can't save enough for a down payment. However, according to a recent Zillow report, rental rates are rising the fastest for those who can least afford that hit to the wallet. According to the real estate site, rents for the bottom one-third of the market are outpacing the market overall as developers are focusing on the luxury end of multifamily.
In June, Apartment List analyzed U.S. Census Bureau data and determined that rents, adjusted for inflation, have risen 64% from 1960, but found that incomes have only grown 18% — which means rent is outpacing income by more than 350%.
