by Dan Rafter
Apartment rents are becoming less affordable to a growing number of U.S. renters. But if you’re looking for signs of hope? The percentage of renters who are spending too much on apartment rents is at least growing at a slower rate.
That’s the takeaway from the latest report on rental rates published by AppFolio.
AppFolio, which publishes cloud-based property management software, said that in cities across the country, a growing number of renters are spending more than 50 percent of their monthly income on rent. AppFolio said that consumers who spend that much on rent are considered rent-buredened, meaning that their apartment is not affordable.
In a growing number of cities, the average monthly apartment rents will consume far too much of consumers’ monthly incomes, AppFolio reported.
Nat Kunes, vice president of product management for AppFolio, said that the affordability gap is widening when it comes to apartment rents. And this gap is rising at a faster pace in many markets that simply don’t have enough apartment units to meet the demand for them.
“I think we’ll see even more rent growth in cities,” Kunes said. “I don’t see any immediate relief for renters. There are no cities that are seeing negative rent growth.”
The sliver of good news for renters? The pace at which apartment rents are growing – and the pace at which they are becoming less affordable for renters – is at least slowing. Rents continue to rise, but they’re not rising quite as quickly as they were one or two years ago.
The biggest problem today, Kunes said, is with wage growth. Consumers’ annual wages simply aren’t growing fast enough to cut deeply into the rental affordability gap, he said.
This has led to increased concern that there simply aren’t enough affordable apartment units today for renters. City planners and some developers are worried that the vast majority of new apartment construction throughout the United States is of higher-end products, units that are designed for wealthier renters. They worry that too many potential renters can’t afford these new properties.
So far, though, these new high-end apartment properties are renting quickly in cities across the United States. Developers have yet to reach the point at which they have to provide costly concessions to entice wealthier renters.
And AppFolio’s research doesn’t uncover any signs that demand is slowing for these more expensive urban apartments.
“Developers right now don’t need to build affordable apartments,” Kunes said. “The demand for the more expensive product is still there. It makes financial sense for the developers to demand top dollar when they can get it. When market conditions do drive the price down, they will have to react to that. But that isn’t happening now. Until it does, don’t expect developers to turn to affordable apartments.”
A growing number of cities, though, are requiring developers to include a higher number of affordable units in their new apartment projects, Kunes said. These communities are relying on federal, state and local tax credits to provide an incentive for developers to include more affordable units in their new apartment projects, Kunes said.
“The economics have to work in their favor,” Kunes said. “Unless the city is stepping in with credits and other incentive programs, you won’t see affordable units hitting the market. The federal and state programs alone aren’t quite sweet enough to convince developers to build affordable apartments. Unless governments work to fatten the incentives, they are not quite significant enough to change the behaviors in the developer world.”
There are cities, though, in which average apartment rents aren’t consuming too great a percentage of renters’ incomes. AppFolio pointed to Indianapolis, for instance, as one of the best U.S. cities for renters. The average apartment rent here only consumes 21 percent of the average renters’ monthly income.
Detroit is fairly affordable, too. AppFolio reported that the average apartment rent here consumes 39 percent of renters’ incomes. In Chicago, renters spend an average of 35 percent of their monthly incomes on rent.
Other cities place more of a strain on renters. AppFolio reported that in New York City, the average apartment rent consumes 58 percent of renters’ incomes, while in Miami that figure is 54 percent.