For most of the pandemic, we saw house prices rise and urban rents fall as city dwellers traded the apartment for a single-family home. Rents dropped as much as 25% in some cities, but the days of apartment steals have come to an end. Rental site, Apartment List, reports that the median apartment rent rose a staggering 11.4 percent from January to July, compared to an average growth of 3.3 percent in pre-pandemic years.
The FTSE Nareit Equity Apartments index, which tracks publicly traded apartment companies, is up 42% since January, surpassing the S&P 500’s 17% gain during the same time period, reports the Wall Street Journal.
The Growth is Concentrated
Rents are increasing across the country, but traditionally expensive cities, like New York, Seattle, San Francisco, and Boston, are still seeing rents slightly below their pre-pandemic levels. San Francisco rents, for example, are rising about 3 percent each month but are still down 23 percent over the year. Apartment List economist, Chris Salviati, says that “in spite of this big increase [from the January 2021 low], we still have a long way to go before we get back to where rents were pre-pandemic.”
Smaller, historically more affordable cities, however, are seeing rents higher than they’ve ever seen pre-pandemic. Rents in Boise, Idaho are 16% higher than they were in March 2020, due to increased demand and limited inventory. Other smaller cities seeing a rent frenzy include Stamford, CT; Phoenix, AZ; Sacramento, CA; among others. Demand for single-family home rentals is especially high as well.
Reasons Behind Rising Rents
Home prices are up nearly 25% compared to last year, and, as a result, many potential homebuyers have no choice but to pay for rent. Compounding this demand are young professionals who feel a renewed sense of financial security and those being called back to work after months of remote work. Even baby boomers are contributing to the high rent demand as they take advantage of the hot market and sell their homes.
There have never been enough apartments, and the historically low inventory in conjunction with the historically high demand, has made the rental market exceptionally competitive. Countless articles are circulating around the internet, saying the same thing: apartments that people could theoretically afford are now out of financial reach. Securing a lease has turned into a bidding war.
While rent prices are typically highest in the summer, seasonal demand is not an adequate explanation for the growth we are currently seeing. Throughout the fall and winter, rental prices may see a slight lull, but will likely remain inflated for the foreseeable future.