Persistent market tightening

PERSISTENT MARKET TIGHTENING The inability of supply to keep up with the rapid rise in demand has led to the longest period of rental market tightening since the late 1960s. Starting in late 2010, the national rental vacancy rate fell for five consecutive years, hitting just 7.1 percent in 2015—its lowest point since 1985. In 2014–2015 alone, the vacancy rate for multifamily buildings with five or more units edged down another 0.9 percentage point while that for single- family rentals slipped 0.2 percentage point.

Growth in the Consumer Price Index for rent of primary resi- dence continued through 2015, far outstripping overall inflation (Figure 30). This is a marked departure from the long-run trend, with rent increases averaging slightly below general inflation since the 1960s. Nominal rents continued their climb through March 2016, with annual rates of increase pushing 3.7 percent.

20

15

10

5

0 Affordable

Units Affordable

Units Very

Low-Income Renters Extremely

Low-Income Renters

FIGURE 29

● Unavailable ● Available

Low-Income Renters Far Outnumber the Supply of Available Units They Can Afford Households and Units in 2014 (Millions)

Notes: Extremely/very low-income households earn no more than 30%/50% of area medians. Affordable units have rents up to 30% of household income after adjusting for household and unit sizes. Source: JCHS tabulations of National Low Income Housing Coalition, The Gap: The Affordable Housing Gap Analysis 2016.

Source: JCHS tabulations of US Bureau of Labor Statistics and MPF Research data.

6 5 4 3 2 1 0

-1 -2 -3 -4 -5 -6

2005 2006 2007 2008 2009 2010 2011 2012 2013

● Rent Index for Primary Residence ● Rents for Professionally Managed Apartments ● Prices for All Consumer Items

2014 2015

Rents Continue to Climb Despite Unusually Low Price Inflation Annual Change (Percent)

FIGURE 30

 

 

29JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY

At the metro level, rent inflation ranged from under 2.0 percent in Cleveland, Philadelphia, and Washington, DC, to 6.0 percent or more in Houston, San Francisco, and Seattle.

The professionally managed apartment sector remains tight in most major markets, with MPF Research reporting a vacancy rate of just 4.2 percent in the first quarter of 2016—a 30 basis- point decline from a year earlier. Much of the recent tightening occurred within the two lower tiers (Class B and C) of the mar- ket. Overall vacancy rates varied widely from 3.0 percent or less in Los Angeles, Miami, Minneapolis, New York, Portland, and Sacramento, to more than 6.0 percent in Houston, Indianapolis, and Memphis. While more than two-thirds of the 94 metro areas that MPF Research tracks reported lower vacancies in the first quarter of 2016, a few major markets—such as Denver, Houston, and Pittsburgh—saw an uptick in rates from a year earlier.

Nationwide, rents in the professionally managed apartment sector rose by a strong 5.0 percent in the first quarter of 2016, up from 4.5 percent a year earlier. Increases were widespread, with rents in nearly all 94 metro markets on the rise. At the same time, however, rent growth slowed in a few areas, including Denver and Houston. In 18 of the nation’s 25 largest markets, rent increases in the middle tier (Class B) outstripped those in the upper tier (Class A).

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