Hotter Rental Demand Forces Apartment Costs to Rise

October 1, 2018

More would-be buyers are being forced to continue renting as rising home prices push them out of the market, which, in turn, is heating up rental demand and prompting landlords to raise rents. The growth rate in rents had been slowing for the past three years because builders focused on adding more rental inventory. But the shortage in for-sale inventory is reversing the trend; in the third quarter of the year, rents rose 2.9 percent compared to a year ago, according to RealPage, a real estate data firm.

Model house, piggy bank and money on wooden office table.

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The cities seeing some of the biggest rent increases include Las Vegas; Orlando, Fla.; and Phoenix—all which saw rents jump between 6 percent and 7 percent over the past year. Rents are up more than 4 percent in Jacksonville, Fla.; San Jose, Calif.; Tampa, Fla.; Riverside, Calif.; Salt Lake City; and San Diego.

“Momentum in the apartment market’s performance during the third quarter slightly surpassed expectations,” says RealPage Chief Economist Greg Willett.

The apartment occupancy rate is at 95.8 percent. Apartment construction continues to pick up, with new multifamily starts up 37 percent annually in August, the U.S. Census Bureau reports. Many of these apartments are in the luxury sector. “With so much high-end new product finishing in the near term, the leasing environment will be competitive in that luxury apartment niche,” Willett says. “At the same time, product shortages remain for moderately priced rental housing. It’s tough to find available apartments at the middle- to lower-end price points across most neighborhoods.”