Are a Glut of SFRs and Apartments Slowing Rent Growth?


If you have factored annual rental increases into your business plan, you might want to revisit those numbers in light of the latest reports on rental outlooks around the nation.  Record numbers of apartments and unprecedented quantities of single family rentals are opening for business in markets across the nation and rents are feeling the pressure.

As of early 2013, renters made up 35 percent of all households. Renters are more likely to be young, low-income, and minority, and are also more likely to be single-person households. The median age for renters is 40, compared with 54 for owners. Their median household income was $31,200 at last measure in 2011, almost exactly half that of owners. The minority share of renters is 47 percent, more than twice the homeowner share of 22 percent. Finally, 37 percent of renters are single-person households, a much larger share than the 23 percent of owner-occupants.

Axiometrics Inc., a provider of apartment data and market research, reports that at the national level annual effective rent growth slowed to 3.2 percent in the second quarter.  Annual effective rent growth in the second quarter of 2012 measured 4.0 percent. Further, Axiometrics’ data indicates that the effective rent growth rate has slowed for eight consecutive quarters.  Peak annual rent growth at the national level during this cycle was 5.3 percent in July 2011.

Despite the slowdown nationally, many individual markets are still generating very strong rent growth rates, with 20 of the top 88 MSAs reporting annual effective rent growth of greater than 4.0 percent. While the national growth rate has been slowly decelerating over the past eight quarters, it should also be noted that the current growth rate is still significantly above the long-term average of 2.1 percent.

Multifamily occupancy at the national level remained strong, measuring 94.7 percent in the second quarter. A year ago the occupancy rate stood at 94.3 percent. The improvement in occupancy has occurred despite an increasing wave of new apartment supply. During the second quarter, 40,739 new apartment units were delivered, up from 18,861 units delivered in the second quarter of 2012. Apartment deliveries have totaled 124,500 over the trailing 12 months. With the pace of new deliveries increasing, the total for new deliveries in 2013 should reach 185,348 units by the end of the year.

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Top Performing Multifamily Markets

For the second quarter, 11 MSAs had annual effective rent growth of 6.0 percent or greater, and all 11 of those markets were located in just four states: California, Colorado, Florida, and Texas. The top MSAs for effective rent growth in the second quarter of 2013 are outlined below:

table 1

Top Markets for New Apartment Construction

Construction of approximately 186,000 new rental units (includ­ing both multifamily and single-family) was completed in 2012, still well below annual averages in the 1990s and 2000s. But with starts of new rentals rising over the course of the year to about 258,000 units, completions should return to more normal levels.  Most of these units will be in multifamily buildings. In fact, more than 90 percent of multifamily units started in 2012 were intended for rent. By comparison, up to 45 percent of new multifamily units started at the height of the housing boom were intended for sale.

Axiometrics also reports that the strong apartment performance the past three years has spurred a rebound in construction activity in many MSAs. Specifically, new units will be delivered in 182 MSAs around the country in 2013, and national deliveries will increase from 87,077 units in 2012 to 185,348 units in 2013.

Texas had three of the top five MSAs in the nation for units delivered during the second quarter. Axiometrics notes that even with the escalated delivery numbers from last year, the Texas MSAs still show some of the best effective rent growth rates in the country as demand is maintaining pace with supply.

table 2

Single-Family Rents Stagnate

Small investors and local property owners continue to own the vast majority of the nearly 14 million single-family rent­als nationwide.

Trulia reported in March that single-family home rents essentially flattened in the first quarter, rising just 0.1 percent.

Investors have purchased single-family homes – including many foreclosures – and are renting them out. In fact, the number of single-family rentals nationally has increased by almost one third since the housing market last peaked: that’s nearly 4 million more single-family homes rented in 2012 than in 2005.

table 3


In some markets where investors are especially active in buying and renting out single-family homes, rents are actually falling year-over-year, including in Los Angeles, Orange County, and Las Vegas. In two other key investor markets – Atlanta and Phoenix – single-family home rents rose less than 1% year-over-year. Even where single-family home rents are rising most, like Tampa, Dallas, and several other Florida and Texas metros, single-family prices are rising faster. In all of the largest single-family-home rental markets, prices are rising faster than rents – and in many, it’s by a wide margin.

table 4

The Last Word

Here’s how the State of the Nation’s Housing Report from the Joint Center for Housing Studies at Harvard summed it up last week:

Rental markets have rebounded so sharply that some observ­ers have expressed concern about overheating. But so far, the indicators point to a healthy recovery. Construction activity has revived from its low during the recession but is still in line with the moderate levels of the 1990s. Meanwhile, vacancy rates con­tinue to edge down and rental rates are moving up, providing no suggestion that supply has begun to outstrip demand.

But with long lags in bringing new multifamily units to market, it is certainly possible that demand could soften even as sup­ply continues to ramp up. At its current pace, renter household growth remains roughly double the pace during the previous rental record-setting decade. As the homeownership market recovers, renter household growth will very likely slow and rental mar­kets will have to adjust accordingly. Since much of the increased demand for rental housing has been satisfied by the expanded supply of single-family rentals, future market adjustments may come from a return of these units to owner-occupancy. In addi­tion, the echo-boom generation should provide important bal­last for rental demand in the coming years, helping to absorb the supply of new apartments coming on the market.

Photo: harry_nl

About Author

Steve Cook is the editor of Real Estate Economy Watch and writes for a several leading outlets in addition to BiggerPockets, including Equifax and Total Mortgage. He also provides communications consulting services to leading real estate companies. Previously he was vice president of public affairs for the National Association of Realtors.


  1. I haven’t seen it personally, but my assistant works for a national apt. chain and tells me that they are offering 25% less than last year. It is the summer duldrums – so I would expect less demand. It’s a cycle. Tenants are buying and there is a lot of new construction. I’m not counting on rising rents. We all made up for that with the prices we paid over the past 5 yrs. My numbers didn’t anticipate increases. In the DC area, sequestration is to blame for many tenants leaving the area.

  2. Steve, in my area in New England (MASS), there is actually a shortage of apartments. Most have 99% occupancy rates, and the rents just keep going Up. There’s also very minimal new multi-family construction going on.

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