In a recent article posted in RISMEDIA, development experts are predicting double-digit rent increases in the next couple of years. The shortage of new multifamily units along with a rise in prime renter-age households are the reasons for the increases. Experts haven’t seen this kind of demand since the 1990’s.
Only 114,000 multifamily units were built-in the United States in 2010, which is so low that this number doesn’t even replace the existing structures that were demolished because of age or natural disasters, according to David Crowe, chief economist for the National Association of Home Builders. For 2011 the expectation is that 133,000 units will be built, which is a 16% increase.
In some cities rents are going up 7% to 8% a year, which that rate is expected to move into other cities. The age group mostly affected are the 18-24 year olds, however, since the housing crisis with more people losing their homes, the age groups will expand to include young families and more established ones, as well.
Builders understand there is a demand, however, their hands are tied because of the longer process and lack of financing available. It is taking longer to get permits and approvals to start the building process. In addition, traditional lenders have backed off from this type of lending, which makes it difficult for most developers to secure debt. Many developers say that if more capital financing doesn’t become available then it will be very difficult to meet the demand.
Hopefully, these increases will not last a couple of years as predicated. The best scenario would be that more renters are able to purchase homes, instead of getting hit with rent increases!