Rents have been declining for nearly two years in the top 50 metros, but low multifamily permitting may send rents higher in the future, according to the February rent report from Realtor. Only 294,000 multifamily units were permitted last year, well below the 318,000 units approved in 2020 at the peak of the pandemic.
“While there has been a gradual correction, the current trend of declining rents over the past 19 months and a still-sizable number of multifamily units under construction have impacted builders' enthusiasm for new projects,” said Realtor chief economist Danielle Hale, who noted the nation is short 3.8 million homes. “As builders attempt to right-size their construction pipelines amid shifting economic and policy cross currents, multifamily builders nationwide have made headway, evidenced by vacancy rates trending up.”
In markets where demand is high and rent is already growing, low levels of multifamily housing permitting will cause further supply constraints and could push rents up in the future, said Realtor. Nine of the top 50 markets studied by the marketplace have experienced lower multifamily approvals and rising prices. These include New York, where rents are up 6.8% as permits are down 9.5%; Kansas City where rents are up 6% and permits are down 6%; and Detroit where rents are up 3.6% and permits are down 11.6%. Other markets following this trend include Washington, D.C.; San Jose; Baltimore; Boston; St. Louis; and Charlotte.
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Conversely, nine distinct metros studied had more multifamily permitting over the past five years and experienced year-over-year rent contractions. Birmingham, Alabama, topped this list, with rent declining 5.4% while multifamily building permits grew by 22.1%. In Cincinnati, rents decreased 3.3% as multifamily building permits soared 29.9% and in Cleveland, rents were down 3% as approvals shot up by 37.9%. Realtor said in these metros, multifamily supply growth is likely to put further downward pressure on rents.
Meanwhile, within the five major metros with the highest concentration of federally-employed workers, rent is up 3.3% year-over-year in Washington D.C. with a 2% pick-up in Oklahoma City and a 1.25% increase in Baltimore. In San Diego, however, rent experienced a sharp decline of 6% from a year ago, while also softening by 1.5% in Virginia Beach, said the report.
Separately, demand for larger rental units remains high, with two-bedroom units seeing the most long-term rent growth over the past five years at 18.3%. This is likely due to barriers to home ownership for first-time buyers keeping many people in the rental market. Rent for one-bedroom units grew 14.3% while studio rents rose 9.7%.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
