Increased demand for rental housing will drive vacancy factors down to 5% and rental rates up to double digits in hot rental markets by 2012
Rent hikes have averaged less than 1% a year over the past decade, according to Commerce Department statistics, adjusted for inflation. Now, Peggy Alford, president of Rent.com, expects rents to spike 7% or so in each of the next two years — to a national average that will top $800 per month.
In the hottest rental markets, the increases will likely top the 10% mark annually for the next couple of years. In San Diego, Alford anticipates rents will rise more than 31% by 2015. In Seattle rents will climb 29% over that period; and in Boston, they may jump between 25% and 30%.
The driving factors
Now that the recession is easing, many of the young people, who moved back home with Mom and Dad, are ready to find new digs, mostly as renters, not owners. Plus, the foreclosure crisis continues unabated, and the millions losing their homes are looking for new places to live.
Apartment developers many not be able to keep up with this heightened demand, which will force prices upwards, according to Chris Macke, a real estate analyst with CoStar, which tracks multi-family housing trends.
“There will be an envelope of two or three years,” said Macke, “when the rise in demand for rentals will exceed the industry’s ability to meet it.”
Plus, Alford added, “there’s been a shift in the American Dream. We’re learning from our surveys that a huge proportion of people are choosing to rent.”
They’ve experienced the downsides of homeownership — or seen friends and family suffer — and don’t want to take the risks or pay the higher costs of homeownership.
Where homeownership costs are particularly high, there are many more renters than owners. In Manhattan, for example, only about 20% own their homes; in San Francisco, about of third of the population does; in Los Angeles, less than 40%; and in Chicago, about 44%.
One factor that could rein in rent increases
The huge number of foreclosed homes that could hit the market over the next few years could put a lid on rental rates.
In many markets, like Phoenix and Las Vegas, there are neighborhoods filled with recently built, single-family homes going for fire-sale prices. When the cost of owning homes falls well below the costs of renting them, more people will buy.
Read Here: Why an investor should consider multifamily investing
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Source: http://money.cnn.com/2011/03/15/real_estate/rent_rise_housing/index.htm
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