CHICAGO—After years of escalating demand for apartments, and a growing affordability crisis, developers in many cities have finally begun to produce enough apartments for renters, who should see rent growth moderate in 2017.

That was the conclusion of Goleta, CA-based software provider AppFolio, Inc., which has just published a study, based on data from Axiometrics, on conditions in 20 core US cities. Still, the affordability crisis remains severe in many areas, with renters paying more than 40% of their monthly income on housing alone.

The chief difficulty has been that during the recession new construction stopped virtually everywhere, but demand for rental housing began surging in many top metro areas.

“It takes many, many years to dig out of a hole,” Nathaniel Kunes, vice president, product management, AppFolio, Inc., tells GlobeSt.com. And until recently, developers were not bringing enough new units to the market to catch up. “This year will be slightly better from an affordability standpoint.”

Historically, rents have usually increased slightly more than two percent each year. But in the aftermath of the recession, some US cities, especially land-constrained markets like New York, San Francisco and Miami, have seen rent growth of 6% and even 12% in a year. “That is obviously unsustainable in the long term,” says Kunes.

New York and Miami are currently the most rent burdened. In both, more than half of the average monthly income is needed to afford the average one-bedroom apartment. Boston and Los Angeles are quickly approaching the 50% barrier as well. But In San Francisco, a construction boom has landlords lowering rents as slower job growth reduces demand. Last year, rents there actually declined 2.3%, and New York tenants saw a decline of 0.7%.

Those declines are perhaps a sign that supply and demand are coming into line, although there are tremendous differences among the top metro areas. In Atlanta, Kunes says there is a good balance between supply and demand, but effective rent growth was 4.7%, about double the historical average. He attributes this to the relatively healthy growth in the region's overall economy. And the average renter was still paying just 23% of their income for a one-bedroom apartment, making it one of the best US cities for renting.

Other cities in the Midwest, including Denver and Indianapolis, have also experienced solid growth, and remain favorable to renters due to low average rent. But rents are rising quickly in the Minneapolis area, primarily due to a lack of enough new supply. “People aren't fleeing the city; they are flocking to it,” says Kunes, and that helped push effective rent growth to 4.0% in the past year.

The chief difficulty has been that during the recession new construction stopped virtually everywhere, but demand for rental housing began surging in many top metro areas.

Instant Insights /

US Rent Growth to Moderate in 2017

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