Current Apartment Rental Trends: A Rising Construction Tide Floats Small Market Rents (and More)
Apartment rent is on the rise in some cities, but stagnating or even falling in others...and not necessarily where you'd expect. In fact, there are some major urban markets where rental growth is either slowing or rent has even dropped, while in some smaller markets rent is skyrocketing past huge cities known for the high-cost of living. Where will renters catch a break and where will rent break the bank? It boils down to construction delivery and how close those smaller cities are to their big city counterparts...
You'd expect higher rents in Houston, Texas, but Austin, Texas? Last year rent actually fell in Houston while smaller Austin saw rental rates rise 7% - outpacing the New York metro area, which only rose by a scant 2.1%! So what gives? According to Forbes, yearly increases slowed to a crawl and hit a 5 year low. In many large urban markets, construction has been delivering: with a plethora of new apartments suddenly available, renters have more choice than ever and are mobile...meaning that rent doesn't rise as usual.
Chicago and Houston are two historically large urban markets that saw rental rates actual fall due to construction growth. The New York metro area saw only small increases despite being known for high rent and a predictable yearly rise in cost. Cities like Austin or Kansas City saw major increases – Kansas City rent jumped by 8.5%! Lately, the mere proximity of smaller market apartments to larger, higher-priced markets means that some rental rates have been climbing. Although even with the price hike, rent in these smaller cities is still more affordable compared to the places known as high-rent districts: New York City, Los Angeles, etc.
Affordability matters – given that rental rates have risen far faster than wages. Even in markets that have seen a slow-down in the predictable rental increase, experts are sure that once construction slows that rent will be on the rise again. For renters looking to stretch a buck, finding an apartment that doesn't take 30% of their income each month is getting harder. In fact, lower wages coupled with higher rent (and other factors like student loan debt) is a huge consideration in home ownership...or the lack thereof. Those renters who struggle each month with higher rent have a much harder time setting money aside for a large down payment on a home.
As construction on new apartments slows in many of the larger markets, rates will begin to rise again – making the cost of living in the big city higher...and living in a smaller market even more affordable by comparison. Despite the current rent hike in these smaller cities, they're still more cost-effective for many renters and with rents expected to rise regularly as in the past, will remain so. The affordability of large and small markets will continue to directly affect home ownership, as renters have to budget for a down payment as well as rising rental rates no matter where they call home.