Apartment Construction at its Highest Level in 20 Years, with Denver, Nashville Joining NYC as 2017’s Hottest Rental Markets

7/17/17

By Ama Otet, RENT Cafe

We’d need 4.6 million new apartments by 2030 to meet demand for rental living and keep prices in check, per data from the National Multifamily Housing Council. That’s about 373K new units each year on average, a number that’s rather optimistic considering the pace of apartment construction in the last decade. So how feasible is this plan? Our most recent study on the apartment market suggests there’s still hope for the country’s growing renter population.

According to data from property intelligence company and our sister division Yardi Matrix, apartment construction is at a 20-year high, with most of our country’s biggest cities seeing significant upgrades in rental stock. After a slow post-recession period, the market started rebounding in 2012 and by 2014 new supply had amounted to more than 237,000 units delivered in one year, well above historical averages. Between 1997 and 2006, annual completions averaged 212,740 units.

In 2017, apartment completions are expected to top 345,000, a 21% increase compared to last year’s deliveries when more than 285,000 units saw the light of day.

Hot Urban Markets See Rents Softening as Developers Ramp Up Apartment Construction

After peaking in 2014 at 5.1%, monthly rent prices rose just 1.5% to $1,316 in May, the lowest annual growth rate we’ve seen in more than three years. In 2017, the average U.S. rent is expected to increase a modest 3.9%.

Does this mean apartment prices are finally taking a break from rent growth? Apparently so, and thanks to intensified apartment construction, that’s even the case with some of the country’s historically tight (or rather outrageously expensive) markets. Close to 6,200 new units entered the San Francisco metro area in 2016, with approx. 5,400 apartments expected to be delivered this year and another 9,500 under construction. While demand is still strong in the city, this flood of new rentals coming online is finally putting a damper on the incessant rent growth that pushed rental costs up a whopping 49% in the last 5 years.

Rents in San Francisco have been slowing down for the last 10 months, with the pace of growth currently at its lowest level in the last 2 years. Rents in May 2017 were $2,497 in the SF metro, a meager 0.5% increase y-o-y. By comparison, in May 2016 annual increases stood at 6.2% and a year before rent growth was in double digits, approx. 11.9%.

And San Francisco isn’t alone in the rent deceleration game. Rents are cooling in other urban hotspots favored by young professionals such as Houston, Austin, Denver, and Portland. Additionally, 6 of the country’s top 10 priciest markets even experienced rent drops in May, including Manhattan, Boston, and San Jose.

“From an affordability standpoint, things are starting to look better for renters,” says Doug Ressler, Yardi Matrix senior analyst. “Rent growth is slowing down, even in the country’s most expensive markets and it doesn’t stop at that. With more units on the table, renters may be able to get some discounts and concessions on new leases, including one month of free rent, waived move-in fees, and free gym memberships.”

New York Leads Rental Boom, with Texas’ Largest Metros Right on Its Tail

The rental apartment boom is in full swing and it stretches from coast to coast. As an all-time favorite playground for developers, New York’s expansion knows no bounds. With more than 17,000 units delivered in 2016 and nearly 27,000 apartment homes scheduled for completion this year, the New York-Newark-Jersey City metropolitan area plays big. And it has every reason to as, even with this huge wave of new apartments entering the market, occupancy is still high in the metro area, approx. 97.5% according to data from Yardi Matrix.

Manhattan is still king of New York apartment construction, but only a couple dozen units sets it apart from the runner-up, Brooklyn. Both boroughs will see approx. 7,000 new units added to their rental inventories in 2017, with Queens landing in third place as 4,165 units are on schedule to enter the market. Jersey City, where rents are flatlining, will also add a consistent 2,000 new units, furthering the prospect of a softening rental market.

Dallas-Fort Worth, the job-centric Texas mega-hub that has seen the largest population increases in the entire country, adding approx. 143K new residents from 2015 to 2016, is second when it comes to new apartment supply.

No less than 25,000 new units are planned for completion this year, making Dallas even more desirable for renters who seek affordability and variety in their housing choices. The local rental market is relatively stable with rent growth at a moderate 3.5% y-o-y. Average rents in the Metroplex hover around $1,094, significantly lower than the national average and half of what New Yorkers shell out on rent on a monthly basis. Moreover, with a diverse economic sector and steady job growth, the employment picture is rock-solid in D-FW, so it’s no wonder young professionals are arriving in droves. Local nonfarm employment rose 3.3% on an annual basis in May, well above the national increase of 1.5%, as reported by the U.S. Bureau of Labor Statistics.

Unlike Dallas, Houston’s economy is mostly tied to the energy industry and concerns over fluctuating oil prices were powerful enough to cause drops in rental rates last year. Combined with record-high apartment completions, estimated at approx. 18,000 units in 2017, Houston’s rental market may well become a renter’s market – at least for the year ahead. Already one of the most reasonably priced big metros in the country, Houston has seen negative rent growth over the past year, largely due to supply outstripping demand. Rental rates are now $1,041 on avg., a 1.1% decrease year-over-year.

The other two fast-growing metros in Texas, Austin and San Antonio, are coming on strong in terms of new supply, each bolstering apartment numbers by approx. 7,400 units.

Denver, Nashville, the Twin Cities Join the Ranks of the Best Markets for New Apartments

The rental boom is not confined to the usual markets of apartment developers such as Miami, Los Angeles, and Washington, DC. Benefitting from thriving job markets and substantial growth in high-income jobs particularly in the tech sector, cities such as Denver and Seattle were bound to see their apartment markets explode. Denver’s multifamily stock will expand by 13,100 new units this year, with Seattle following closely at 10,100 new units.

An unexpected, though pleasant, surprise for those who cherish the Midwestern lifestyle, is the intensified construction activity taking over the Twin Cities. A robust 6,700 new units are expected to be completed in the Minneapolis-St. Paul area in 2017, and this may mean more perks and amenities in store for local renters. New communities such as Foundry Lake Street in Uptown Minneapolis offer the best of urban living and could easily rival premier properties on either coast for half the price. Rents in the Twin Cities sit somewhere around $1,184, lower than most of the country’s biggest cities and cheaper than its larger neighbor Chicago.

While Chicago has always been more expensive than other Midwestern hubs, winds are now getting milder for renters in the area as new supply kicks in. Chicagoland has seen its fair share of development in recent years, with 7,800 new rentals projected to hit the market in 2017. Apartments in the area now command $1,410 on avg., basically flatlining year-over-year.

Following the apartment flood south, Nashville stands out as one of the best performing housing markets in 2017. The recent investments in hospitality, technology, and health-care projects in the Nashville metro have translated into more jobs and increased demand for housing which in turn favor multifamily construction.

“The number of new apartments popping on Nashville’s housing scene is astonishing,” added Doug Ressler of Yardi Matrix. “As many as 8,500 units are about to enter the market – the highest point of inventory growth in terms of sheer volume over the last 5 years – and there’s still room for growth. The area is slowly becoming a favorite relocation destination for people all across the country, both young workers looking for a healthy work environment and retirees in search of quieter grounds.” Job growth is at 4% in Nashville, the second-highest rate of increase among those posted by the 100 largest U.S. metros.

The Other Side of the Coin: Low Supply Keeps Pressure Up on California’s Fastest-Growing Metro Areas

When there are more renters than rental units, prices rise. There’s no way around that and this is one of the reasons why cities such as Sacramento and Riverside will continue to put pressure on renters’ pockets. Riverside is the 11th fastest-growing metro area by population increase, having gained approx. 52,400 renters between 2015 and 2016, more than both Greater LA (+41,619) and the San Francisco-Oakland-Hayward metro (+36,939). Sacramento is not far behind, with 28,830 new residents moving into the city. While both SF and LA are brimming with construction activity, keeping rent growth somewhat under control, things are quite the opposite in the Sacto area and the Inland Empire.

Much like in 2016, Sacramento will barely see 740 new units delivered in large-scale developments this year. It may come as no surprise then that rents are at an all-time high in the city, having increased a worrying 8.2% year-over-year. Riverside is doing slightly better with approx. 1,170 new units on schedule to be completed in 2017, but still well below what is needed to respond to the growing demand for apartments.

Other low-ranking areas include St. Louis, Cleveland, and Buffalo where large-scale development is practically insignificant, all adding less than 2,000 units to their rental inventories. Among the 50 largest metros in the U.S., New Orleans is the least active with a lackluster 500 units projected to come online in 2017.

The Rise of Renting Driven by Millennials and Baby Boomers Alike

Consistent employment growth and Millennials entering their prime renting years remain key drivers of the apartment market. But it’s not just young people that rent anymore. While flexibility and ease of mind used to be top priorities primarily for the younger generation in the past, things have started to change. There’s an increasing number of baby boomers who choose renting over buying precisely because this way of life comes with fewer financial strings attached and indisputably less hassle related to property upkeep. Moreover, renting puts people in prime locations, within walking distance to jobs, shops, and entertainment, which would perhaps be hard to get in otherwise.

“Lifestyle changes, a housing-stock shortage and high homes prices have led to more people than ever – of all ages – choosing to rent an apartment rather than buy a home”, Doug Ressler said. Of the 42.8 million renter-occupied households, most renters come from the ranks of Gen Y – approx. 36%. Baby boomers now make 30% of the renter demographic, an increase of 2% from 2014 to 2015, and growing.

Best and Worst Apartment Markets in 2017

The table below contains new supply projected to come online in 2017 in 100 metropolitan areas across the U.S. The metros have been ranked from the best to the weakest in terms of number of new apartment completions based on data estimates from Yardi Matrix. All metros containing less than 300 units have been eliminated from the ranking. *The Bronx and Staten Island are not included in the New York metro data set.

Metro AreaApartment Supply 2017Population Change % 2015-2016Job Growth 2016-2017
New York-Newark-Jersey City, NY-NJ-PA*26,7390.2%1.6%
Dallas-Fort Worth-Arlington, TX24,9602.0%3.3%
Houston-The Woodlands-Sugar Land, TX17,9601.9%1.5%
Los Angeles-Long Beach-Anaheim, CA14,6670.3%1.0%
Miami-Fort Lauderdale-West Palm Beach, FL13,4661.1%2.8%
Denver-Aurora-Lakewood, CO13,1421.6%2.5%
Washington-Arlington-Alexandria, DC-VA-MD-WV13,0980.9%1.5%
Atlanta-Sandy Springs-Roswell, GA11,7971.6%3.1%
Seattle-Tacoma-Bellevue, WA10,1141.9%2.5%
Nashville-Davidson-Murfreesboro-Franklin, TN8,5572.0%4.0%
Chicago-Naperville-Elgin, IL-IN-WI7,792-0.2%0.7%
Boston-Cambridge-Newton, MA-NH7,5580.6%1.7%
Austin-Round Rock, TX7,4352.9%2.8%
San Antonio-New Braunfels, TX7,4222.0%2.5%
Phoenix-Mesa-Scottsdale, AZ7,3092.1%2.4%
Minneapolis-St. Paul-Bloomington, MN-WI6,6580.9%2.0%
Charlotte-Concord-Gastonia, NC-SC6,5292.0%3.1%
Orlando-Kissimmee-Sanford, FL5,8572.5%4.0%
San Francisco-Oakland-Hayward, CA5,4150.8%1.9%
Portland-Vancouver-Hillsboro, OR-WA4,8021.7%1.8%
San Diego-Carlsbad, CA4,6680.8%1.4%
Las Vegas-Henderson-Paradise, NV4,6232.2%2.9%
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD (Delaware Valley)4,6220.1%1.6%
Salt Lake City, UT4,4461.6%3.2%
San Jose-Sunnyvale-Santa Clara, CA4,4280.5%1.4%
Tampa-St. Petersburg-Clearwater, FL4,3712.1%3.3%
Baltimore-Columbia-Towson, MD4,0540.2%0.6%
Raleigh, NC3,9422.5%2.6%
Columbus, OH3,8231.1%1.6%
Kansas City, MO-KS3,7191.0%1.9%
Jacksonville, FL3,3972.1%3.5%
Milwaukee-Waukesha-West Allis, WI3,220-0.1%0.3%
Indianapolis-Carmel-Anderson, IN3,0810.9%2.1%
Louisville/Jefferson County, KY-IN2,6330.5%2.0%
Des Moines-West Des Moines, IA2,4002.0%2.6%
Charleston-North Charleston, SC2,1752.2%2.2%
College Station-Bryan, TX1,9632.0%2.8%
Greenville-Anderson-Mauldin, SC1,9261.3%0.9%
St. Louis, MO-IL1,8560.0%0.9%
Virginia Beach-Norfolk-Newport News, VA-NC (Hampton Roads)1,8050.2%-0.1%
Omaha-Council Bluffs, NE-IA1,6881.1%1.6%
Baton Rouge, LA1,6520.7%0.5%
Cleveland-Elyria, OH1,651-0.2%0.8%
Spokane-Spokane Valley, WA1,6271.7%1.3%
Detroit-Warren-Dearborn, MI1,6150.0%2.1%
North Port-Sarasota-Bradenton, FL1,5562.7%3.6%
Cincinnati, OH-KY-IN1,5530.5%2.0%
Oklahoma City, OK1,5501.2%1.1%
Richmond, VA1,5500.9%1.7%
Hartford-West Hartford-East Hartford, CT1,434-0.3%1.3%
Fort Collins, CO1,3221.8%4.0%
Buffalo-Cheektowaga-Niagara Falls, NY1,291-0.2%0.6%
Bridgeport-Stamford-Norwalk, CT1,210-0.1%0.6%
Greensboro-High Point, NC1,2050.6%1.3%
Knoxville, TN1,1940.9%0.7%
Corpus Christi, TX1,1860.4%2.1%
Riverside-San Bernardino-Ontario, CA1,1641.2%2.9%
Dayton, OH1,0440.1%0.5%
Rochester, NY1,011-0.2%-0.5%
Boise City, ID9822.3%3.7%
Wilmington, NC9571.8%2.2%
Madison, WI9191.3%1.9%
Toledo, OH912-0.1%-0.2%
Providence-Warwick, RI-MA8850.1%0.8%
Tulsa, OK8840.7%-0.2%
Pittsburgh, PA876-0.4%0.6%
Columbia, SC8591.0%1.0%
Grand Rapids-Wyoming, MI8510.8%2.3%
Birmingham-Hoover, AL8220.2%1.0%
Lexington-Fayette, KY7661.2%2.2%
Sacramento-Roseville-Arden-Arcade, CA7381.3%1.1%
Waco, TX7291.1%1.2%
Tallahassee, FL7250.5%3.9%
Pensacola-Ferry Pass-Brent, FL7221.6%2.0%
Killeen-Temple, TX7091.2%2.8%
Cape Coral-Fort Myers, FL6943.1%0.5%
El Paso, TX6940.6%2.8%
McAllen-Edinburg-Mission, TX6881.3%2.0%
Burlington, NC6711.2%1.5%
Eugene, OR6641.9%1.6%
Jackson, MS6610.1%0.5%
Lubbock, TX6471.3%1.1%
Columbus, GA-AL612-1.0%0.7%
Reno, NV5881.8%2.7%
Chattanooga, TN-GA5770.8%2.5%
Savannah, GA5571.4%1.9%
Myrtle Beach-Conway-North Myrtle Beach, SC-NC5453.9%4.2%
Hilton Head Island-Bluffton-Beaufort, SC5401.9%1.3%
Portland-South Portland, ME5180.5%1.2%
Macon-Bibb County, GA505-0.3%1.2%
Syracuse, NY504-0.5%1.0%
New Orleans-Metairie, LA5010.5%-0.3%
Fort Wayne, IN4660.6%1.4%
Lansing-East Lansing, MI4510.7%2.4%
Wichita, KS4240.3%-0.5%
Huntsville, AL4031.1%2.6%
Stockton-Lodi, CA3881.4%2.0%
Worcester, MA-CT3330.2%1.0%
Manchester-Nashua, NH3180.4%1.7%
Kennewick-Richland, WA3041.7%1.3%

About RENTCafé and How We Compiled the Data

RENTCafé is a nationwide apartment search website that enables renters to easily find apartments and houses for rent throughout the United States.

To compile this report, RENTCafé’s research team analyzed new apartment construction data across 134 U.S. Metropolitan Statistical Areas. The study is exclusively based on apartment data related to buildings containing 50 or more units. New supply refers to 50+ unit properties which have a completion date projected for 2017.

Building and rent data was provided by our sister company, Yardi Matrix, a business development and asset management tool for brokers, sponsors, banks and equity sources underwriting investments in the multifamily, office, industrial and self-storage sectors.

Data on population changes from 2015 to 2016 comes from the U.S. Census Bureau. Job growth data was provided by the U.S. Bureau of Labor Statistics and refers to 12-month percent changes in metropolitan area nonfarm payroll employment from May 2016 to May 2017.

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