Data show rents are improving but amid these green shoots, there are still signs of stress in the market.
By Caitlin Walter, Ph.D.
- Caitlin Walter is vice president of research at the National Multifamily Housing Council (NMHC) in Washington, D.C. She can be reached at cwalter@nmhc.org.
Recent reports have noted an uptick in rents. RealPage, for one, reported that asking rents were up in 140 metros in February compared to January, unchanged in four metros and down in only six metros. While increasing asking rents are certainly a positive indicator that market fundamentals are improving, we need to proceed with caution when interpreting the magnitude of the significance. Here are four points to keep sight of in the near term.
1. Rents are still recovering.
While month-over-month changes in rents are encouraging, it’s important to recognize that we’re still working our way back to pre-pandemic levels. RealPage reported that the annual change in asking rents was -0.9 percent in February, meaning that rents were still below from where they were in February 2020.
2. According the NMHC Rent Payment Tracker, the share of apartment households making a rental payment still remains below pre-pandemic levels each month.
While there was a slight increase (30 basis points) in rental payments from January to February 2021 (93.5 percent compared to 93.2 percent), they remained 160 bps below February 2020 levels. This translates into 185,337 fewer households that made a rent payment in February 2021 compared to the year prior.
3. These rents do not reflect the entirety of the rental market.
While the NMHC Rent Payment Tracker covers a large swath of the professionally managed multifamily market, the apartment rental market itself is large and diverse with small rental properties making up a significant portion of the market. Previous research from the Urban Institute has shown that owners and renters in smaller properties, who would be less likely to be captured in data from private data providers, are more likely to be vulnerable to economic shocks. For this reason, data around such metrics as rents and occupancy for this group is difficult to obtain, so much is unknown about what performance may be like in this segment of the rental industry.
4. Affordability constraints persist.
There were affordability challenges before the pandemic began, particularly for those in Class B and C product. Demand has long outstripped supply in most markets, as evidenced by the apartment market’s low vacancy rates leading up to the pandemic. As households find more certainty in the recovery, we expect an increase in demand for apartments could place additional stress on the existing supply.
Any positive metrics are an encouraging sign, but it is important to look at a variety of indicators to gauge the health of the apartment industry. Increases in asking rents suggest that we are beginning to see pickup in demand, particularly in places like urban areas where people may have temporarily relocated elsewhere, but it provides little insight into the financial situation of existing renter households. As vaccine rollouts continue to improve, and the economy fully reopens, we will be able to learn more about what has changed in the market. Indicators such as the NMHC Rent Payment Tracker, the Census Household Pulse and Business Pulse surveys, as well as apartment data providers, will continue to be important to monitor what segments of the economy are recovering and at what pace.
