Boston Small Multifamily Market Update

Small Multifamily Rent Growth Remains Steady

Small multifamily rent growth across the Boston metro area has remained at healthy levels throughout this cycle. Between 2013 and 2019, rents have risen annually in the range of 2.4% to 6.7%.

According to Chandan Economics’ estimates, 2019 rent growth was lower than the year before. However, rents still increased substantially, growing by 4.4%.

The Boston area has always benefited from its combination of world-renowned universities and STEM-based employers. But it was less frequently known as the final destination for high-income households. This perception is quickly fading. High-end lifestyle neighborhoods, headlined by the South Boston Waterfront and Seaport districts, are helping with citywide resident retention.

Rental Affordability Improves

On average, small multifamily households are seeing an improvement in rental affordability. Rents accounted for 22.6% of household income for small apartment renters in 2018. Chandan Economics estimates this figure staying at 22.5% through 2019.

The share of income spent on rent has consistently fallen since 2016, when it sat at a high of 24.2%. The amount of household income left over after paying rent for Boston small multifamily renters is growing quickly. From 2016 to 2017, after-rent incomes grew by 6.4% to $51,743.

The next year brought even larger increases, as the after-rent figure swelled by 11.6% to $57,720. For 2019, Chandan Economics estimates that after-rent incomes for this group grew an average of 4.8%, settling at $60,512.

However, these averages don’t tell the full story. Both renter conditions and the composition of renters surveyed influences the results.

In Boston, many middle-and-low-income neighborhoods are transforming into higher-income areas. As a result, it’s important to recognize that solely looking at the averages doesn’t capture the ongoing affordability struggle for many renters. According to a JCHS analysis of the American Community Survey, the only income group to see an increase in renter households across all property types between 2010 and 2018 were those earning above $75,000. For households earning between $30,000 and $74,999, the share classified as moderately or severely rent-burdened continues to rise.

Boston Multifamily Market Positioned for Success

The above data suggest that Boston’s labor market strength and new lifestyle amenities are translating into greater multifamily success. Small multifamily renters are holding onto more of their income, which is a good sign for the sustainability of the apartment sector’s strength, all else being equal.

At the same time, these trends seem to be primarily the result of attracting and retaining high-income renters rather than an improvement in the experience of existing lower-income renters. Those calling for patience, suggesting that supply just needs time catch up to demand, are about to see their theory tested in real-time. Apartment deliveries over the next two years are expected to reach unprecedented levels.

However, around the country, rent control measures are being implemented in several high-cost markets. In Boston, the debate is ongoing. While Boston has the ingredients needed for a strong multifamily market performance over the long-term, affordability for cost-burdened households remains an issue. If affordability doesn’t improve, local policymakers may be driven to change rent regulations and therefore shift the dynamics of the city’s multifamily market.

For more multifamily trends and insights, visit the Chatter blog. Need multifamily financing? See Arbor’s loan programs and contact us today to speak with an originations specialist.

Note: All historical data is sourced from the American Community Survey (ACS), unless otherwise stated. ACS statistics are sample-based estimates of the compositional profile of the total population in the given year of data collection and include a margin of error. 2019 data are based on Chandan Economics model estimates. Small multifamily is classified as properties with 5-49 units.