21 Jun Multifamily Demand Drivers Continue to Be Disrupted
Traditionally rents would increase based upon factors such as employment growth or population growth. But the pandemic made changes in rent not seen before.
The overall rent surges/declines throughout the beginning of the pandemic were mainly based on job growth/decline. The pandemic was a hard time for everyone everywhere and from April 2020-March 2021 no major metro gained jobs. The bigger markets where they had lost relatively few (like Tampa, Phoenix, and Inland Empire) had rents still increase 7-10% whereas those places that did lose many jobs (NYC, San Francisco, Seattle) had a decrease in rent throughout the pandemic by 5-15% to combat their declining economy. But now rents have surged almost everywhere regardless of occupancy, supply growth, or cost.
As seen in this graph above there was a heavy correlation between rent and employment growth until the pandemic hit, and now it is far off from what it was just a few years ago. Due to pent up demand from the previous years and recovery from urban centers, rents increased massively over these past couple years. Rents increased 15% year over year through beyond the pandemic, which cannot be sustained for very long.
Multifamily occupancy rates have been at or above 95% since mid 2015 due to the stunt in supply growth following the Great Recession as banks decided to cut back on construction lending. This caused a big supply-demand imbalance in many metros.
As seen in this graph, rent has surged despite not as much growth in the stock of multifamily buildings. This hike in rent is likely due to having to combat inflation and to represent the bounce-back from rent declines.
There may be many factors that will play a role in higher rental growth/decline in the post covid era. These have been described as migration (due to the ability to work from home), wage growth, and possible future rent control that has yet to be determined. Rents are currently outpacing wages by 10 percentage points. This means in the future it is almost certain that rents will have moderation, likely determined by the economy performance, migration, and regulations.