Multifamily Rents Surge in Smaller Metros, Even as California Markets Feel the Heat

The renewed economic and cultural dynamism of smaller U.S. metros has pulled apartment rents up, while the housing crisis in the Golden State remains unrelenting.

Smaller Metros Outperform on Rent Gains

Not all housing price increases are equal or desirable. However, strong rents coupled with inventory expansion, economic vibrancy and rising wages, could constitute sound housing market conditions.

Nonetheless, these very conditions could dissipate quickly if either housing supply fails to keep up with demand or wages fall behind prices, precipitating a wider housing crisis.

A look at the year-end 2017 average multifamily rent changes in the U.S. Census Bureau’s latest American Community Survey (ACS) alludes to this split story; new pockets of the country have attracted Millennials looking for cheaper pastures outside expensive primary urban and technology centers, many of which are in the grips of a housing crisis.

As shown below, of the 10 metros that showed the highest average rent increases for small apartment buildings, the majority comprised medium-sized urban centers (below 2.5 million metro population) with moderate-to-low rent levels, as discussed in our previous blog. These included Portland, Sacramento, Omaha, Madison, Nashville, Louisville, Orlando, and Las Vegas.¹

(Please click around for detailed chart information)

On the other hand, all six of California’s largest metros, including Los Angeles, San Jose, San Francisco and San Diego, led the national average on rent growth and were also measured to be the most expensive places to rent in the country, according to the 2017 ACS data.

Squeeze on Large Asset Rents in the Biggest Urban Centers

As shown below, the impact of the ongoing resolution of large asset oversupply in the biggest U.S. population centers has translated into muted levels of rent growth. New York, Chicago, Dallas and Houston, all fell below the national average rent from 2016 to 2017. Los Angeles was the exception, as it continued to experience strong rental price growth.

(Please click around for detailed chart information)

Medium-sized urban centers, however, experienced robust increases in large asset multifamily rents, accompanied by inventory expansion, as discussed in a previous blog. In addition to the metro areas named above, top performers included Birmingham, Columbus, Indianapolis, and Austin. All California metros experienced robust rent increases in this asset class.

In further examining the resurgence of smaller U.S. centers, upcoming blogs will delve deeper into the impact of Millennial demand and migration on the housing markets and economies of these cities.

1 All 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.