Not only has buying a home become unaffordable for more and more people over the past few years, but rents are increasingly steep, too, hitting new heights in some cities. So the fact that a flood of new rental units is hitting the market this year should mean prices are going to fall, right?
The most new apartment units in a decade, more than 320,000, are slated to come online this year after nearly 10 years of anemic building after the housing bust, according to a recent RENTCafé report. The rental website used data from sister company Yardi Matrix, an apartment market research firm. That translates into more than 1,400 buildings with 50 or more units going up in the country’s 50 largest metros, according to the rental website. And the bulk of those are in Texas.
But contrary to the laws of supply and demand, a greater supply of rental options doesn’t necessarily mean prices will come tumbling down. That’s because nearly all of these developments are luxury housing, which is more profitable for builders. The average national rent was $1,213 in June, according to a RENTCafé report on buildings with 50 or more units.
But many of the country’s renters are struggling to make ends meet. Roughly 37% of Americans were renters as of mid-2015, according to a study by Harvard University’s Joint Center for Housing Studies. And 26% are dropping more than half their income each month on rent.
“We’re building for those who have successfully come out of the recession, but are leaving behind those who are struggling just to make rent,” says Jack Kern, RENTCafé’s director of research and publications. “The construction [costs are] so high, and the cost of materials and labor has continued to rise, which makes it almost impossible to build affordable units.
“[But] the rate of growth in the cost of rent will probably slow down going forward,” he says. “The economy has started to cool off, so folks won’t be getting raises that will allow them to afford rent increases at the rate that they did previously.”
Despite the slowdown in the energy sector (as evidenced by prices falling at the pump), the most large-scale rental projects are going up in Texas—with the Houston and Dallas metros leading the pack. Austin came in sixth.
“Apartment complexes are being built everywhere. Most of them are luxury apartments in the suburbs,” says Greg Nino, a Houston real estate agent with Re/Max Compass. “The prices aren’t coming down. But they are offering incentives, like an extra month of rent for free, or sometimes they’ll offer free cable for the duration of the lease.”
Top 10 cities with the most new rental units
1. Houston, TX
2. Dallas, TX
6. Austin, TX
7. Seattle, WA
8. Miami, FL
9. Atlanta, GA
10. Denver, CO
The influx is partly due to all those planned and unfinished projects that were stalled during the recession finally coming online, Kern says. And recently, builders have also been able to get low interest rates to finance these developments.
And these aren’t any old apartment complexes.
“People are not as interested in living in a plain old apartment with a parking space and a swimming pool,” he says. “They want the experience of living in a high-end resort, where all kinds of services are available to them.” That can include round-the-clock concierge services, pet playgrounds (no, we’re not kidding), with hoops for Fido to jump through and chutes he can slide down, as well as rooftop lounges.
In Houston, “the buildings come with theater rooms. There’s banquet rooms, there’s outside barbecue areas,” Nino says.
But despite the influx of new units, it still isn’t enough to alleviate the housing crunch, Kern says.
About 150,000 to 200,000 rentals are lost each year to things like fires, natural disasters, and old age as well as buildings that are converted into condos and co-ops or torn down to make way for new projects, he says.
“We would need to build two to three times as many units as are currently being built in order to be able to meet the actual demand for apartments,” Kern says.
“I don’t believe that most of the new construction will end up relieving the need for affordable units.”
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