Rents Continue to Rise in US Apartment Market

HOUSTON – (By Dale King, Realty News Report) –Interest rate hikes by the Federal Reserve result in higher rents for apartments and homes and elevated rents will remain probable in the future, according to the Waller Weeks & Johnson Rental Index,a new study by university housing researchers.

“The Fed’s interest rate increase will price more people out of the housing market and keep them as renters – and as long as the demand for renting remains high, rental rates almost certainly will stay elevated as well,”said Ken H. Johnson, Ph.D., an economist in Florida Atlantic University’s College of Business.

The rental index, a collaboration begun this year by scholars at Florida Atlantic University, The University of Alabama and Florida Gulf Coast University, finds that most renters across the nation are paying significantly more than expected for their housing units based on historical trends in individual markets.

Results for 107 of the largest metros in the U.S. are contained in the recently released report. The average cost of an apartment in the United States is $1,979, just a little shy of 10 percent more than the $1,801 price that should be charged to lessees across the nation.

The Waller Weeks & Johnson Rental Index says the Houston ranks sixth among the top seven Texas communities where the cost of rent has risen to various levels above the amount that leaseholders should be paying.

The so-called “premiums” paid by Texans in the seven biggest metropolitan areas range from 15.76 percent at the top in Killeen, a central Texas community in Bell County, down to 6.12 percent in College Station, an east Texas city in Brazos County.

The study ranks Houston average rental fee at 7.57 percent, just a tad higher than College Station. Numerically, that means the monthly rent for an average apartment dweller in Houston is $1,575 while it should historically be at $1,464, say the researchers.

The cost of a rental increased just .7 percent, month-over-month, in May 2022 and 11.7 percent, year-over-year.

In Killeen, renters can expect to pay $1,437 a month for the average apartment rather than a historically reasoned rate of $1,241.

Next highest after Killeen is Austin, where rental units are priced 13.02 percent higher than they should be. After that is Dallas/Fort Worth, 11.16 percent higher than would be expected; San Antonio, 9.35 percent above the historically proper figure and McAllen, in Hidalgo County on the U.S.-Mexico border, where a rent slip costs 9.17 percent above the anticipated price. Houston and College Station follow.

The index reports that Metro Miami was the nation’s most overvalued rental market in May for the third consecutive month. Lessees in South Florida’s largest metro are paying 22.70 percent more per month than historical records would figure.

The researchers use past leasing data from Zillow’s Observed Rental Index to statistically model historical trends from 2014 and determine where rents should be now and compare those to existing rents. The difference between the two is the premium renters are paying. The higher the premium, the more overvalued a market is.

The analysis covers the entire rental stock of homes and apartments.

Bennie Waller, Ph.D., an incoming faculty member at UA’s Culverhouse College of Business, said year-over-year rent increases in Florida and across the country clearly are being driven by persistent inventory shortages in multifamily housing.

“Until we can build units faster, the nation’s rental crisis will continue,” he said.

But building faster is difficult, said Shelton Weeks, Ph.D., of FGCU’s Lucas Institute for Real Estate Development & Finance.

“In addition to the lengthy approval process faced by apartment development projects, a primary culprit here is the resistance within many communities to new projects with higher levels of density,” he said.

“In order for markets to function properly and add supply where needed, it is critical for municipalities to streamline the approval process for these projects and for density to be increased to a point where the new units can be offered at reasonable rental rates.”

The researchers say an easing of rent escalation is possible, but it won’t be immediate.

File: Rents Continue to Rise