BAM Key Details:
- According to RentCafe’s Rental Competitivity Report, rental competition has significantly increased in the Northeast as New Jersey overtakes Miami as the hottest rental market in the U.S.
- Overall, competition has cooled slightly, but low inventory and lack of affordable housing make it a challenging market for all.
The lack of affordable for-sale properties, coupled with high mortgage rates, have put homeownership out of reach for many. As if that weren’t challenging enough, we’re also dealing with a shortage of rental properties.
Sure, some areas are seeing a decline in rent growth as property owners anticipate a drop in local renter demand, due to the increase in multifamily construction.
But that’s not what residents in the hottest rental markets are seeing. While construction and acquisition of rental properties continues, it can’t keep up with intensified renter demand.
RentCafe just announced its Rental Competitivity Report for the start of 2023, based on its analysis of how easy (or difficult) it is for renters right now to find an apartment across the U.S.
Here are the findings.
Nationwide rental competition cools slightly while some markets heat up
While previous reports showed Florida at the number one spot for the hottest rental markets, competition has been building up in the Northeast, where demand has been outpacing supply—specifically in North Jersey, Brooklyn, and Boston.
Other markets, including Silicon Valley, Los Angeles, Chicago, and Manhattan, have seen significant jumps in rental demand compared to a year ago.
The Rental Competitivity Index (RCI) is what determines which metros top the list of hottest rental markets, based on the following key metrics:
- Occupancy rate
- Vacant days (days on market)
- Prospective renters per vacant unit
- Lease renewal rate
- The share of new apartments
Based on the report, here are the stats for today’s overall rental market:
- Current overall rental occupancy rate: 94%
- Apartments are filling up within 38 days
- Prospective renters competing for each unit: 8
- Overall lease renewal rate: 61%
- Increase in new apartments: 0.43%
Top 20 Most Competitive Rental Markets
While nationwide rental stats look slightly improved compared to a year ago, the nation’s largest rental hubs, where supply has not kept up with the increase in demand, have seen a significant increase in renter competition.
North Jersey is now the hottest rental market in the country. The severe housing shortage, combined with an increase in rental demand from affluent newcomers, has pushed its rental occupancy rate to 96.6%. The average vacant apartment has 12 renters competing for it and is occupied within 38 days. Based on those numbers, North Jersey’s RCI score is at 115, nearly twice the national average of 60.
Miami, Florida, is now the second hottest rental market in the U.S., with an occupancy rate at a record-high 97% and 70% of renters renewing their leases. Despite its 1.24% uptick in new apartments, Miami can’t keep up with renter demand. Each unit has as many as 20 potential renters competing for it and goes off the market within 33 days.
Meanwhile, rental demand in Brooklyn and Boston surged toward the end of 2022, adding these two markets to the top 20 list of the most competitive markets for 2023. Both saw modest upticks in new apartments (0.3% to 0.5%), with occupancy rates above 95% and about two-thirds of renters opting to renew their leases.
After last year’s historical high in apartment construction and slightly more renters moving out, the national occupancy rate decreased by 1.4% year-over-year. More so, there are eight prospective renters competing for the same apartment (three prospects less compared to this time last year), so it now takes about one week more for a vacant apartment to become occupied. All these factors combined indicate a slowdown in rental competitivity on a national level. However…it’s getting harder for renters to find apartments in places like Manhattan; Chicago; Silicon Valley; Washington, D.C.; Boston. Many of these markets have become more competitive amid the lack of supply and high lease renewal rates of over 50%, which means that more renters are putting pressure on an already limited apartment inventory.
For more details, click here to read the full year-end report from RentCafe.
As for methodology, the research team for RentCafe.com analyzed Yardi Systems apartment data for 172 U.S. rental markets, focusing on market-rate large-sale multifamily properties of 50-plus units each. Fully affordable multifamily properties were not included.
Top takeaways for real estate agents
In a market that keeps homeownership out of reach for so many aspiring homeowners, you’re likely to meet quite a few prospects who, depending on their unique situations, may be better served by continuing to rent and saving what they can for a future down payment.
What you can do to help them save money in the meantime will make it more likely that they’ll seek out your help when home-buying conditions improve. Nothing says you can’t call their attention to lower-cost rentals in your area that meet their needs and enable them to save more.
Ultimately, the goal is to leave each client and prospect better off than before they met you. For now, that might look like helping them save more on rent and other household costs, so they’ll be in a better position to buy a home they can afford when the market is more favorable.