Single-family Rent Growth Faster in Markets with Low Vacancies: One-percentage point lower vacancy rate leads to 0.5% faster rent growth
Rent growth varies across neighborhoods and over time. For this reason, rent-growth expectations are important not just for families who are deciding whether to rent or own their home, but also for investors who are trying to forecast net revenue on their housing investment.
Looking at the types of properties that renters live in, about 38 percent are 1-family homes.Another 7 percent are rental condominiums, typically a unit in a multifamily structure (Figure 1). And if we include small multi-unit buildings, then 1- to 4-family houses and rental condominiums account for more than one-half of our nation’s rental stock.
The importance of single-family rental homes and condominiums underscores the need to understand how rents on these properties vary with market conditions. Using CoreLogic’s Single-family Rental Index, we examined rent growth across 28 metropolitan areas over the last year and compared these with the rental vacancy rates in these markets. We found that our rent index grew faster in markets with low vacancy rates: On average, for each 1-percentage point decline in the local vacancy rate, rent growth was about one-half percentage point faster during 2016 (Figure 2).
This rent-vacancy relationship is important for property owners and managers. Not surprisingly, the type of investors who own single-family properties are very different from those that own high rises. For example, more than 80 percent of 2- to 4-family rental properties are owned by individuals, but less than 10 percent of rental properties with 50-or-more apartments are owned by individual investors (Figure 3).
We would expect that those metros that have relatively low vacancy rates in early 2017 will also be the markets with more rapid rent growth during the coming year. CoreLogic’s Single-family Rental Index found that rents were up 2.6 percent in December 2016 compared with one year earlier, measured as an average across 40 metro areas. Because rental vacancy rates remain relatively low, we expect that rents will continue to rise about 2½ to 3 percent in 2017, outpacing inflation, with faster growth in tight, low-vacancy metros and slower growth in high-vacancy markets.
2 For owners of small rental properties, one tenant’s payment ability can have a large impact on the property’s rental income. Tenant screening tools, such as CoreLogic’s MyRentalTM (https://www.myrental.com), can help property owners and managers identify top-quality applicants.
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