Residential rental rates in the U.S. are at record highs, reflecting the impact of rising interest rates on home ownership, as well as elevated construction and land costs.
The median monthly asking rent in the U.S. surpassed $2,000 for the first time in May, rising 15% year over year to a record high of $2,002, according to Redfin Corp. data. Similarly, Zillow Inc. data showed that typical U.S. rent was $1,979 in May, up 15.9% year over year.
Residential property prices have soared nationally since the onset of the pandemic, making it difficult for prospective owners to buy. The U.S. Federal Reserve's decision to increase interest rates to counter inflation has also significantly changed the economics of buying versus renting.
In most markets across the U.S., renting is now more affordable than a mortgage and is likely to remain that way for a while, according to Zillow Economist Nicole Bachaud.
"We're seeing a lot of people leaving the for-sale market, but they're going to have to live somewhere. More likely than not, that's going to be staying in the rental market. And so we're going to see an increase in demand for rentals," Bachaud said in an interview.
Florida leads the U.S. in rent growth. In May, the state contained nine of the top 10 metropolitan areas with the largest year-over-year rent increases, Zillow data showed. Nationally, Fort Myers had the highest year-over-year market rate rent growth at 33.1%, followed by Miami-Fort Lauderdale at 31% and North Port-Sarasota-Bradenton at 28%.
People flocked to Florida during the pandemic in search of affordable housing and nice weather, Bachaud said. Estimates from the U.S. Census Bureau suggest that between April 1, 2020, and July 1, 2021, Florida's population grew by 1.1% to 21.8 million people.
Many of the people that moved to Florida earlier in the pandemic ended up staying, according to Cushman & Wakefield Inc. Executive Managing Director Calum Weaver. More recently, a second wave of people have started relocating to the state, following the lead of family, friends and peers who have already made the move.
"We have seen a kind of second wave of it. And that's put pressure on the rental market, as well as the single family market," Weaver said in an interview.
Like the rental market, Florida cities also lead the U.S. in price growth for single-family homes. Tampa ranked first in April with a 35.8% increase in home prices year over year, followed by Miami with a 33.3% increase, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index showed.
More than two years into the pandemic, some companies are changing their once-flexible policies on remote or hybrid work. In the San Francisco Bay Area market, apartment rents grew during the first quarter of 2022, reflecting the return of technology workers.
However, changing corporate policies on remote work have not had any noticeable effect on demand for rental housing in South Florida, according to Weaver.
Multifamily has been popular with real estate investment trusts and institutional investors during the pandemic, owing to low vacancy rates across the country and the property type's ability to quickly raise rents. The national shortage of single family homes has also boosted the popularity of build-to-rent or single-family rental homes, with REITs reporting high occupancy and low turnover in the first quarter.
From 2017 to 2021, some 35,000 apartments were delivered in South Florida, according to Cushman & Wakefield data. At the start of 2022, there were another 36,414 apartment units under construction in the region, slated to be delivered between 2022 and 2024.
Weaver said he expects the new apartments to help with the strong demand for rental housing, but he is doubtful that it will bring down rental rates in a significant way. Well-situated tracts of land in the region are scarce and expensive, making it challenging for developers to build cheaper multifamily product and charge lower rental rates. Global supply chain issues and inflation have also forced construction, maintenance and insurance costs higher.
"I don't think all the developers have a burning desire to build [Class] A... it's just, you have to do A, or you can't do anything. That's the rationale behind it," Weaver said.
