Rise

Apartment Rents Rise as Incomes Stagnate

Apartment Landlords Continue to Push Through Hefty Rent Hikes in the Second Quarter

By Chelsey Dulaney

Apartment landlords continued to push through hefty rent hikes in the second quarter, squeezing U.S. households that already are struggling financially after four years of steady increases.

The average monthly rent for an apartment rose to $1,099 in the second quarter, up 0.8% from the first quarter, according to data to be released Wednesday by real-estate research firm Reis Inc. That was the 18th consecutive quarter of rent increases. For the 12-month period ended in June, rents rose 3.4%.

Effective rents—which tend to be lower than asking rents—were up in all 79 U.S. metro areas tracked in the Reis report. West Coast cities that have been the model of recovery continued to top the list of highest rent growth for the quarter and over the past 12 months. 

Rent growth exceeded 6% over the past year in San Francisco, San Jose and Seattle.

Even cities that aren't normally associated with fast rent growth, such as Charleston, S.C., and Nashville, Tenn., posted strong growth over the year, up about 5% or more for the year.

"You have definitely seen that recovery now spread to all of the major markets around the country, even if some of them were laggards," said Ryan Severino, an economist at Reis. "It's a very pervasive recovery."

Economists said the growing demand for rental housing partly reflects changing preferences among younger renters, who tend to prefer urban areas. But the demand for rentals also reflects tight mortgage-lending standards that have shut out potential homeowners from the market.

"If you can't get into a single-family house and you can't get a mortgage, well, you don't need a mortgage to get an apartment," said Stephanie Karol, an economist at IHS.

But household incomes have stagnated, resulting in a financial squeeze for a growing number of renters. Median household income was $50,017 in 2012, below 2007's peak level of $55,627, after adjusting for inflation, according to U.S. Census Bureau data.

In the Raleigh-Durham, N.C., metro area, rents rose 1.2% in the second quarter, the seventh-largest rent increase in a metro market, according to Reis. Rents have risen 3.3% in the past year.

Raleigh resident Abbie Swank, 23 years old, began looking for a one-bedroom apartment last August. Ms. Swank, who works as a bartender at P.F. Chang's China Bistro, was surprised by the prices and realized she would have to make sacrifices.

"I went to some that were in the $700 to $800 range, but they were the size of my living room now, or the area was tucked back in the woods," she said. "I didn't want to come home at 2 o'clock in the morning" to a home located in an isolated area.

In January, Ms. Swank settled on an apartment 15 minutes outside of downtown with a monthly rent around $900. "I like where I'm living now, but it's not really where I wanted to be completely," she said. "I really wanted to live downtown. I just can't afford it."

Ms. Karol of IHS said such elevated rents are leaving many households struggling. "When you compare that kind of growth to what we've seen in wages and salaries, you start to see, wow some of these costs are just out of this world for a lot of people," she said.

There could be some good news on the horizon for renters. While apartment vacancies, a barometer of demand, fell in more than half of the 79 metro areas included in the Reis report, they were unchanged nationally at 4.1% in the second quarter. That could mean supply is finally starting to catch up with demand, a sign that rent growth could slow at some point. According to the Reis report, the market is expected to deliver 180,000 new multifamily units this year.

"We think new supply will self-correct rising rent," Ms. Karol said. "It will be a continuous process of easing over the next few years."

But Mark Zandi, chief economist at Moody's, says affordability problems will likely remain, especially for lower-income households. "There's going to be a very severe housing-shortage problem," he said. "People are going to be in very difficult situations. This is a problem that's going to be increasingly severe over the next few years."