Inflation has been tame the past decade. But not for many apartment dwellers, who saw rents rise 6 percent or more annually for the past eight years.
Now that inflation is heating up for other goods, in 2018, rental rates will stay out of step, with only a moderate increase of less than 3 percent nationwide, according to analysis from RealPage, a real-estate data provider.
Still, bigger hikes are expected in certain markets.
Most likely to see a rise, says Greg Willett, RealPage’s chief economist, are middle-income tenants who live in what the apartment industry terms “B” and “C” buildings in areas with comparatively few new luxury complexes.
Renters at the bottom end are less vulnerable to increases because landlords worry that they’re already financially strained and a rise would result in costly vacancies.
Earning about $50,000 annually, B and C renters typically live in apartments built in the ‘70s and ‘80s. Most of the newly built apartment stock nationwide is aimed at the luxury market, Willett explains, since the cost of land and construction is almost the same for both the high-end and middle-market, and it’s more lucrative to build for higher rents.
Where there’s been a lot of construction activity, leasing all those new luxury apartments gets competitive, and that actually helps hold down rent increases for middle-market. That’s why rent growth is expected to dampen overall in areas such as Charlotte, North Carolina; Austin, Texas; Dallas; and Seattle, Willett says.
If middle-income renters don’t see a lot of listings and advertisements for new buildings, they are the most vulnerable to a hike. And they won’t like it, according to a recent survey of 4,000 renters by Freddie Mac showing 44 percent will consider moving if there’s a big rent hike.
But they may end up staying put and paying more, Willett predicts, since “it’s going to take a lot of work to really find a less expensive unit.”