With Demand Indicators Dropping, White House Pressure Campaign, Have Rent Hikes Finally Gone Too Far?
America's tenants may finally be hitting the limit on how much they can take of skyrocketing rents.
A coalition of advocacy groups has submitted a series of proposals for the White House to intervene in the rental market as part of a mounting pressure campaign, the Washington Post reports. Meanwhile, traffic and applications at market-rate multifamily units have been dropping since March during the historic peak season for renting, proptech firm MRI Software found in a report of data gathered through the end of July.
After more than a year of increases, average rents decreased slightly from June to July, though they still represent a 20% year-over-year increase from July 2021.
“Today’s multifamily market demonstrates what many of us learned in Econ 101: that when prices rise, demand drops,” MRI Software principal Brian Zrimsek said in a statement released with his firm's report. “Tight occupancy led to rising prices, but now we’re seeing dampened demand, which, in turn, is leading to reductions in pricing."
Occupancy remains near historic highs in markets across the U.S., but part of that equation could also be related to the moderation in demand reported by MRI. Multifamily landlords increased rent in units with new tenants by 19% over the previous tenant in June, according to a RealPage study. Renewal rates in July were 9% higher than they were a year before, and 14% higher than in July 2020, MRI found.
In warmer states, where population growth has been fastest since the pandemic and rent growth has led the nation, rent increases when units turn over have been among the highest in the country, RealPage found. But asking rents in 12 such markets dropped in July for the first time since 2020, according to data from CoStar subsidiary Apartments.com.
Even though construction of all housing types is far off the pace needed to keep up with population growth, sticker shock is at risk of causing a "significant collapse in demand" in the Sun Belt, a CoStar multifamily analyst said in a statement released with the Apartments.com report.
Phoenix has seen some of the most rent growth among major markets since the outbreak of the pandemic, and its average occupancy rate has dropped over 200 basis points since April.
What's going on in Phoenix? No other apartment market is decelerating right now at the pace we're seeing in Phoenix -- which not long ago consistently ranked among the national leaders in rent growth. But a lot has changed so far in 2022. Here are a few stats: pic.twitter.com/HGl1hwUGVC
— Jay Parsons (@jayparsons) August 11, 2022
With rental assistance running out in many markets while eviction moratoriums are largely a thing of the past, homelessness has been on the rise, the Post reports. Homes Guarantee, the coalition of housing advocates making pleas to the Biden administration, called for a task force to explore implementing measures such as tying rental assistance and Fannie Mae/Freddie Mac-backed mortgages to caps on rent increases. While the MRI study finding declines in demand focused exclusively on
market-rate units, REITs reporting double-digit rent growth in Q2 projected they could continue to raise rents in the back half of the year, albeit at slower rates than in the first half.
