By Matthew Strozier
These are heady days for apartment owners: Demand is growing and supply of new rentals continues to lag. But are landlords getting ahead of themselves? Will a recovery take hold that allows people to afford heftier rents?
It turns out that the outlook isn’t so bad. Research from the real-estate forecasting firm Property & Portfolio Research, which is owned by CoStar Group, says median household income and average rent over the next five years will grow at similar rates. Nationally, PPR projects growth of 16.1% for median incomes between now and 2016, versus 15.6% for rents. (The data are from 54 major markets tracked by PPR.)
But conditions differ from market to market, depending on level of household formation and the pace of income growth. Conditions in places such as Raleigh, N.C., could spur landlords to raise rents at a higher rate in coming years. By contrast, new supply and prior rent growth in Washington, D.C. will likely moderate rental growth there, according to PPR.
Rent-to-income ratios nationally should remain basically steady, and below the prior peak reached in 2001. (Falling home prices and low mortgage rates could make buying a home newly attractive for some renters in coming years, although affordability has done little too boost the housing market so far.)
To be sure, renters won’t be happy to hear that their monthly rent is projected to jump to a national average of $1,436 in 2016, up from $1,242 in 2011, according to PPR. Higher rents and declines in home ownership are helping to fuel investors’ interest in the apartment market, even from developers that usually focus on malls and offices. Construction starts in multifamily in November jumped 25.3% from the prior month, according to the Commerce Department, although construction of new multifamily units remains low on a historical basis.
Readers, what do you think: Where is the rental market headed this year and after?
Original Post: http://blogs.wsj.com/developments/2012/01/04/projection-rents-incomes-to-grow-together/
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