Apartment renters aren't moving much
Apartment dwellers are staying put in record numbers, a brand of loyalty that’s helping drive up rents.
The share of renters opting to renew their leases hit an all-time high of 53.8% through the first seven months of the year, up from 52.9% in 2015, according to new data from property management software provider RealPage.
A more typical 45% of renters renewed their leases annually in the mid-2000’s, a share that roughly held steady through the recession as job losses forced many to downsize or move in with relatives, says RealPage Chief Economist Greg Willett.
Rent still soaring but should moderate soon
The renewal rate has risen steadily since 2010, partly because fewer renters are buying homes, Willett says. Average home price increases have outpaced wage gains. And stricter, post-recession bank credit standards make it more difficult for young adults to qualify for a mortgage.
Also, many Millennials are choosing to live in downtown areas where apartments proliferate. And they’re getting married and having children later in life, a shift that favors renting over homeownership. The nation’s homeownership rate fell to 62.9% in the second quarter, the lowest on Census Bureau records dating to 1995.
Daniel and Melissa Martin, who rent a one-bedroom apartment in downtown Dallas, recently renewed their lease at $1,500 a month because they can’t afford to buy a house in the city’s hot real estate market.
“It’s hard to afford all that while trying to save” and pay down student loan debt, says Daniel, 28, who works in public relations. They were going to move to another apartment until their landlord agreed to reduce a $100 monthly rent hike to $20.
At the same time, renters looking to move to other low- or mid-priced apartments have few choices, Willett says. The occupancy rate is 96.4% for low-priced units and 96.2% for mid-priced dwellings, according to RealPage.
“You’re unlikely to relocate if it’s a big struggle to find a vacant apartment in your preferred neighborhood at the price point you can afford,” Willett says.
By contrast, occupancy is 94.9% for expensive apartments. That’s largely because apartment developers are overwhelmingly putting up luxury buildings, many in or near central business districts to accommodate the Millennials and others who prefer to live there. Willett says land is so pricey in those areas that more affordable apartment complexes would not be profitable in many cases.
Many downtown luxury apartments sit empty
The meager apartment turnover is helping push up rents. Annual increases have risen from about 3% in 2011 to about 5% this year.
A plethora of new apartment construction should temper the hikes to about 4% next year, but most of the 537,000 units being built in the 100 largest markets are at the high end, Willett says.
About 330,000 apartments are slated to be completed this year, up from 230,000 in 2015.