many metro areas through late 2015 and early 2016 have moderated. Sacramento, which tops the Yardi Matrix survey with 12.1%
year-over-year growth, is the only metro to post double-digit
annual increases; next up is the Inland Empire with 7.4% year-over-year growth.
The other key factor, said Yardi Matrix, is that the uptick in
supply of high-end “lifestyle” apartments has effectively “put a lid
on rent growth in some metros, in some cases in tandem with a
slowing rate of job growth.” The rate of rent growth remains
higher for lower-cost “Renter-by-Necessity” units than their
upscale Lifestyle counterparts.
That being said, the Yardi Matrix report
notes that the recent deceleration is “far
from being a sign that the sector is over-
heated. Fundamentals in most markets
continue to be strong. Occupancies of sta-
bilized properties are not far from cyclical
highs, while the growing population cou-
pled with strong job numbers is producing
above-trend household formation that
leads to demand for apartments.”
So where do we go from here? Steve
Patterson, president and CEO of Related
Development, stresses the importance of
first understanding how we got here.
“There are several variables that have
allowed rent growth to exceed income
growth,” he says. The first is housing
expense as a percentage of income. “This
percentage varies widely market to market
and continues to grow in most. Some US
markets demand 50% or more of house-
hold income for housing cost. Residents
will continue to adapt to rising housing
cost relative to income.”
But one of the factors that have driven
housing costs up is increased infill devel-
opment, he says, which is much more
expensive to rent, own and develop than
suburban housing. “The desire for infill
housing continues to grow as our urban
cores become more 24-hour activated, walkable and fun. This
walkability and Uber reduce the need to own a car, allowing
residents to reallocate some of their transportation budget to
their housing budget.”
Patterson notes that “in reality, we are probably building an
enormous amount of parking for these urban residents that may
someday sit empty.” What’s important going forward, he says, “is
to continue to minimize this rising cost trend with smaller but
efficient units, bulk purchasing and cost-effective building techniques, which will help. Driverless cars, Uber and Lyft will do
the heavy lifting.”
The desire for
grow as our
activated, walkable and fun.”
STEVE PATTERSON, Related Development
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S: 4. 5”