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December 21, 2014

Stagnant Wages Put Brakes on Rent Rise

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Stagnant Wages Put Brakes on Rent Rise

Rents continued to rise nationwide in the first quarter of this year — but at the slowest pace in the last 12 months. Landlords are finding it difficult to raise rents by more than 5 percent to 10 percent a year, according to a newly released report by Reis Inc.

“With median wages not rising appreciably, unless the apartment complex caters to the top 1 percent of income earners, it will be more of a challenge for landlords to raise rents moving forward,” Reis reports.

Asking rents and effective rents bumped up 0.5 percent and 0.6 percent, respectively, in the first quarter, Reis reports. Reis projects that effective-rent growth will be slightly stronger this year compared to last year, but mostly thanks to an influx of new apartment units arriving on the market that are priced at a premium.

Reis projects that there will be nearly 180,000 new units in the first quarter, which will mark the highest level of new completions since 1999.

“This amount of new supply presents competition that may further dampen the ability of landlords of existing buildings to raise rents,” according to Reis’ report. “As supply growth ramps up in response to tight multifamily fundamentals, we expect more of a moderation in vacancy trajectories.”

Reis projects that demand for apartments will continue to be strong, even as the single-family for-sale market recovers, but the firm expects “continued outperformance to moderate in the near term.”

Markets like San Jose, Calif., San Francisco, Seattle, and Oakland-East Bay — which are all benefiting from a booming technology sector — are among the top four markets for largest effective-rent growth over the last year. In these markets, effective rents grew by at least 5 percent in the past year.

Source: “Q1 2014 Apartment Market Trends,” ReisReports (June 13, 2014) [Log-in required.]

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