As rental demand grows, soaring rents are taking a bigger bite out of householdsâ€™ pocketbooks.
About half of renters spend more than 30 percent of their income on rent, up from 18 percent a decade ago, according to newly released research by Harvardâ€™s Joint Center for Housing Studies. Twenty-seven percent of renters are paying more than half of their income on rent.
"We are in the midst of the worst rental affordability crisis that this country has known," says Shaun Donovan, U.S. Secretary of Housing and Urban Development.
Rising rents mixed with a stunted wage growth has created an affordability problem, the study notes. Between 2000 and 2012, real median rents rose nationwide by 6 percent. However, over that same time period, the real median income of renters fell by 13 percent.
A shortfall in affordable units is particularly troublesome as low-income renters struggle to find a place, the study notes.
"Over four years, [thereâ€™s been] a 43 percent increase in the number of Americans with worst-case housing needs," says Donovan. "Let's be clear what that means: They're paying more than half of every dollar they earn for housing."
Young professionals are also turning to renting and finding higher rents to be a hurdle to getting ahead. Many have plans for home ownership one day: Nineteen out of 20 people under the age of 30 say they intend to buy a home in the future.
"There is no question that the will toward home ownership remains there â€” [the problem is] the way,â€ says Eric Belsky, director of Harvardâ€™s Joint Center for Housing Studies. However, rising home prices and mortgage rates, high student loan debt, and tightened credit is holding many back and forcing them to continue to rent.
Source: The Harvard Joint Center for Housing Studies and â€œSkyrocketing rents hit 'crisis' levels,â€ CNBC (Dec. 9, 2013)
Multifamily properties near college campuses often can equate to higher returns, and investors havenâ€™t overlooked this sector for steady profits. But how close do you have to be to the college campus to see the highest returns?
CoStar evaluated multifamily data of 10 college campuses to find the relationship between rents and campus proximity.
Researchers found that properties less than 1.5 miles away from one of the 10 college campuses evaluated saw average rents that were higher than rents five miles away. However, the rent premiums were modest up to three quarters of mile away, CoStar reports.
Within a half mile and quarter-mile from campus, the average rent commands a 40 percent premium compared to a five-mile radius.
Therefore, students who are wanting to have a walking commute to school of 13.6 minutes or less will need to expect to pay a premium on rents, notes Brian Kerschner, a real estate economist with CoStar Group.
Source: â€œSearching for Higher Rents Near Higher Education,â€ CoStar Group (Dec. 9, 2013)
Harvardâ€™s Joint Center for Housing Studies released its biennial housing report today, offering predictions for the U.S. rental market in the next two years. While the study finds that growth in demand for multifamily housing will slow its pace within the next few years, demographic forces alone will mean an increase of between 4 million and 4.7 million renters over the next decade.
The report gives voice to some anxiety about possible overbuilding, noting that long development periods in multifamily housing make it harder to determine the actual volume of new multifamily housing coming onto the market. The study also finds that â€œvacancy rates do appear to be bottoming out and rent increases are slowing in many markets, suggesting that supply and demand are moving into balance.â€ Still, there are two areas where rental availability is far lower than demand: Low-income rentals and affordable senior housing.
The report notes that the â€œgrowing number of seniors on fixed incomes is likely to outstrip the limited supply of affordable rentals. With the number of families with children also on the rise, demand for larger rental units will increase as well, particularly in communities with access to good schools and employment centers.â€
Yet while demand is growing, so too are rents, putting further pressure on these groups. For the first time, more than half of all U.S. renters spend more than 30 percent of their income on rent. Between the year 2000 and 2012, real median rents (adjusted for inflation) increased by 6 percent across the country. During the same period, the real median income of renters dropped by 13 percent. The report also says that the private market is struggling to keep up with the growth in demand in this demographic.
The studyâ€™s authors note that the deficiency in low-income rental options is growing faster than it has in previous years.
â€œThe shortfall in the number of units affordable to extremely low-income renters in the U.S. more than doubled from 1.9 million in 2001 to 4.9 million in 2011. The situation just keeps getting worse,â€ says Chris Herbert, Research Director at the Harvard Joint Center for Housing Studies. â€œFor many low-income families, the rental housing affordability crisis is like a game of musical chairs in which there is never a chair left for them.â€
Source: "America's Rental Housing: Evolving Markets and Needs," The Joint Center for Housing Studies of Harvard University (Dec. 9, 2013)
Single-family rental homes are on the rise in communities nationwide in the aftermath of the housing meltdown.
In 32 of the country's top metropolitan regions, at least 20 percent of all occupied single-family homes were rentals in 2012. According to a USA Today analysis of U.S. Census Bureau data, that is up from just seven metros in 2006.
Researchers say the growth reflects changes brought by the housing bust and the enduring financial hardships ushered in by the Great Recession. Nationwide last year, 18 percent of occupied single-family homes were rentals â€” an increase from almost 15 percent in 2006.
The metro areas with the most growth in single-family rentals are those where foreclosures were most prevalent, including Las Vegas, Florida's Cape Coral area, and Stockton, Calif. Metros outside the top foreclosure hot spots have also seen bigger growth in single-family rentals than the national average, including Memphis, Dallas, and Denver.
Source: "In More Homes, The Roof Overhead Is Rented," USA Today (Oct. 21, 2013) &Â Information Inc.
The U.S. apartment vacancy rate fell to its lowest level in more than a decade during the third quarter, according to a new report by real estate research firm Reis Inc. It was down to 4.2 percent, the lowest vacancy rate since the third quarter of 2001, when it stood at 3.9 percent.
"Demand has been so strong to push vacancy rates to such a low level, yet we haven't seen rent growth of the magnitude we would normally expect," says Reis senior economist Ryan Severino.
The average effective rent â€” which is the rent landlords charge after incentives such as a free first month â€” in the third quarter increased by 3 percent year-over-year. With such low vacancy, rents normally would grow by about 4 percent to 5 percent year-over-year, Severino says. Stagnant job and income growth are what has held rents back, he added.
New construction of multifamily homes is expected to help offset low vacancies next year and could also help slow the increase in rental rates, Severino says.
The two cities with the highest effective rent increases were San Francisco and San Jose, Calif., which both increased 2.2 percent. San Francisco saw rents at $2,043 per month while San Jose was at $1,686. New York had the priciest rents in the country with an average effective rent of $3,049, according to Reis. Meanwhile, Wichita, Kan., had the lowest rents at $529 per month.
Source: â€œU.S. apartment vacancy rate falls, rents rise,â€ Reuters (Oct. 1, 2013)
HomeAway Inc., an online marketplace for vacation rentals, says it saw strong performance for its vacation rental owners during the summer season.
The companyâ€™s summer report finds the average occupancy rate for vacation rentals at 77 percent for vacation rental owners who consider summer their peak season. These owners reported an average weekly rental rate of $1,778 ($254 per night) â€“ a 19 percent increase over the same time period in 2012.
Comparatively, Smith Travel Research, Inc. reports the average occupancy rate for U.S. hotels for the summer season was approximately 70 percent â€“ a two percent year-to-year rise â€“ with an average room rate increase of 3 percent.
For the second consecutive year, nearly nine in 10 vacation rental owners (86 percent) report their summer business was about the same or better than last summer. And 95 percent of vacation rental owners said they did not lower their rental rates from last summer â€“ 23 percent increased their rental rates.
One of the top concerns of vacation homeowners prior to opening their homes to travelers includes concern of losing money on the endeavor (23 percent). But the survey found that more than half (51 percent) of the owners who have a mortgage on their vacation rental home were able to cover at least three quarters of their mortgage payment â€“ an increase of six percent year-over-year. Additionally, nearly three-quarters (70 percent) cover at least half of their mortgage payment â€“ an increase of six percent over last year.
Prior to renting, vacation rental owners (35 percent) also worry about managing the home as a rental along with a full-time job or family obligations. The survey found that vacation rental owners spend an average of 8.4 hours per week marketing and managing their vacation rental properties.
â€œIf the owner optimizes the time and effort put into managing their vacation rental, the return on investment is substantial,â€ says Brian Sharples, co-founder and chief executive officer of HomeAway.
Thirty-nine percent of owners originally purchased their vacation home for personal use. Nearly two-thirds of owners (66 percent) spent up to 28 days in their vacation rental in the past twelve months, and 76 percent cite personal or work reasons for not being able to spend more time in their vacation rental â€“ not guest bookings.
Another 15 percent of owners classify their vacation rental as a future retirement home. The average age in which owners purchased their vacation homes was 48 years old â€“ six years younger than owners in 2012 â€“ and the average age in which owners began renting their vacation homes was 50 years old â€“ also six years less than owners in 2012.
Traveler demand to fill vacation homes is rising in the Florida Panhandle, with Fort Walton Beach, Navarre Beach and Pensacola/Pensacola Beach leading the country as a vacation destination.
Compared to this same time last year, the growth of inquiries and new vacation rental listings in the Florida Panhandle is rivaled by its neighbors Captiva & Sanibel Island and North Carolinaâ€™s Outer Banks region, which shows strong performance from Duck, Kitty Hawk, Corolla, and Kill Devil Hills.
Ski spots Keystone and Durango, Colo., are also peaking, according to Home Away, along with Park City, Utah. Sunriver, Ore., a dark horse in burgeoning vacation rental markets, saw a 77 percent growth in vacation rental listings and traveler demand.
Markets with largest increase in new vacation rental listings
â€¢ Keystone, Colo.
â€¢ Sebago Lake, Maine
â€¢ Outer Banks, N.C.
â€¢ Sunriver, Ore.
â€¢ Port Aransas, Texas
â€¢ Captiva Island & Sanibel Island, Fla.
â€¢ Florida Panhandle
â€¢ Austin, Texas
â€¢ Savannah, Ga.
â€¢ Orlando, Fla.
Markets with largest increase in traveler demand
â€¢ Sunriver, Ore
â€¢ Park City, Utah
â€¢ Bryson City, N.C.
â€¢ Durango, Colo.
â€¢ Isle of Palms, S.C.
â€¢ Florida Panhandle
â€¢ Gulf Shores & Orange Beach, Ala.
â€¢ Clearwater, Fla.
â€¢ Newport Beach & Balboa Island, Calif.
â€¢ Captiva Island & Sanibel Island, Fla.
Source:Â Florida RealtorsÂ®
Investors eager to pick up rental properties should be eyeing several metros, particularly out West, where rental rates have skyrocketed over the past year.
The San Francisco Bay Area has seen some of the largest rent hikes â€” an increase of 7.8 percent in the second quarter of this year compared to the same time period a year ago, according to Texas-based market-research firm MPF Research.
Of the top 50 U.S. metros with the highest average rent growth, the following areas have seen the biggest spikes, MPF found:
- San Francisco: 7.8%
- Oakland, Calif.: 6.9%
- Denver: 6.1%
- Seattle: 6%
- San Jose, Calif.: 5%
- Portland, Ore.: 4.4%
- Houston: 4.3%
- Austin, Texas: 4.1%
- West Palm Beach, Fla.: 4%
- Fort Worth, Texas: 3.6%
Source: â€œRent Increases Send Investors House Hunting,â€ Realty Times (July 19, 2013)