Home rental prices have soared in the past 18 months, just like home-purchase prices.
Rental information service Zumper’s National Rent Index hit a record high in July. The median one-bedroom rent totaled $1,450 in the month, up 2% from June and 11.3% a year earlier. The two-bedroom median rent hit $1,750 in July, also up 2% from June and up 9.3% from July 2001.
“[Apartment] affordability will continue to be a substantial challenge” going forward, according to a study commissioned by the National Apartment Association and the National Multifamily Housing Council.
On the supply side, the picture is nuanced for the rental market.
“Amid demographic shifts and lingering pandemic impacts on the population and broader economy, the U.S. faces a pressing need to build 4.3 million new apartments by 2035,” the study said.
That includes an existing 600,000-apartment deficit because of underbuilding following the 2008 financial crisis.
Demand Picture is MixedBut, “although many metropolitan areas will experience compelling growth in demand, a confluence of factors at the national level will lead to more muted growth than the past decade through 2035,” the study said. It includes rental apartments in buildings with five or more units.
“The aging population will continue to be a key driver of slowing demand fundamentals going forward,” the report said.
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“Due to the pandemic, immigration plummeted and the death rate soared. As a result, population growth nearly halted in the last two years. Looking ahead to 2022-2035, population growth is forecasted to slow to just 0.4%.”
The aging population “could cause the homeownership rate to increase by 3.8%,” even though the number of older renters is rising, the study said.
“However, delayed marriage and family formation, as well as Hispanic households being the second-largest growth segment of the population during the next decade, could diminish homeownership growth.”
That’s because “Hispanic households have historically had larger households and lower rates of homeownership,” the study said.
Geographical FactorsThere is geographical imbalance in rental demand. As for the strongest regions, Texas, Florida and California will likely account for 40% of new rental demand in the period through 2035, the study said. They will require 1.5 million new apartments during that period.
On the weak side, population is expected to decline in Detroit, Chicago, Cleveland and New Orleans, mostly driven by a slide in younger segments of the population,” the report said. “These areas are among the bottom-ranking markets for apartment demand.”
In terms of age, renting could increase for both the 65-plus and the 35-44 cohorts the report said. Looking at the elderly, the number of 65-plus renter households soared 43% from 2009 to 2019.
As for the younger set, “the net worth of people ages 35 to 44 is lower compared to the late 1980s, making it hard for some to save for down payments,” the report said.