Is Rent Growth Finally Slowing?

by Elizabeth La Jeunesse
Research Analyst

Rents rose faster than inflation in almost three-quarters of the nation's major housing markets, according to analyses done for our latest America's Rental Housing report. However, there are multiple signs that while rents are still on the rise, the rate of increase is slowing in most areas, and the long-standing gap between the increases in rents and rise in the cost of other goods is shrinking.

In particular, as our new interactive chart (Figure 1) shows, according to the US Bureau of Labor Statistics’ (BLS) Consumer Price Index, contract rents for primary residences (which covers the broadest range of rental property types) rose by 3.8 percent annually in both November and December 2017. This not only was a tenth of a percentage point lower than the annual rate in September and October (3.9 percent), it was also the first sign of easing rent growth in the CPI measure in over seven years (since late 2010, when rent growth slowed to a near standstill).

Figure 1: Rent Growth Relative to Inflation

United States Midwest Region Northeast Region South Region West Region Anchorage (AK) Atlanta (GA) Boston (MA) Cincinnati - Hamilton, OH-KY Chicago - Gary - Kenosha, IL-IN-WI Cleveland - Akron, OH Dallas - Fort Worth, TX Denver - Boulder - Greeley, CO Detroit - Ann Arbor - Flint, MI Honolulu (HI) Houston - Galveston, Brazoria, TX Kansas City (MO) Los Angeles - Riverside - Orange County, CA Miami - Fort Lauderdale, FL Milwaukee - Racine, WI Minneapolis (MN) New York - Northern New Jersey - Long Island, NY-NJ-CT-PA Philadelphia - Wilmington - Atlantic City, PA-NJ-DE-MD Pittsburgh (PA) Portland - Salem, OR-WA San Diego (CA) San Francisco - Oakland - San Jose, CA Seattle - Tacoma - Bremerton, WA St. Louis (MO) Washington - Baltimore, DC-MD-VA-WV

The chart also illustrates that, despite slowing somewhat, increases in rents still outpaced increases in the cost of non-housing goods nationally, regionally, and in all but one of the 25 metros tracked by the BLS (the exception was Anchorage). However, the national gap, which expanded from mid-2012 to mid-2016, has fallen from 4.9 percentage points in late 2016 to 2.3 percentage points in late 2017.  Moreover, the gap between increases in rents and inflation in non-housing goods narrowed in all four regions of the US, and in 22 of the 25 metros tracked by the BLS.  

Data on rents in professionally managed apartments in 100 markets, provided by RealPage through the third quarter of 2017, also indicate that nominal rent increases outpaced inflation in almost three quarters of the 100 markets tracked by that firm. However, as another of our interactive tools shows (Figure 2), the pace of growth slowed in most areas. Indeed, in 70 of these same 100 apartment markets, average annual rent growth as of the third quarter of 2017 was less than annual rent growth as of the third quarter of 2016. The differences were particularly notable in several markets in the West and South. In Nashville, for example, apartment rents, which grew by 7.0 percent annually through the fall of 2016, rose by only 1.1 percent through the fall of 2017. Similarly, in Portland, rents rose by only 2.1 percent through the fall of 2017, compared to 6.8 percent for the same period in 2016.

Figure 2: Rent Increases Moderated in Many But Not All Markets in 2017

These shifts are significant because changes in rent growth for professionally managed units tend to be a leading indicator of broader trends in rents and, as such, can help identify turning points in the national rental market. Therefore, looking forward, the critical question is whether (and how quickly) the slowdown that appears to be occurring in professionally-managed markets will broaden to the rental market’s other segments and, if it does, whether the gap between the pace of rent increases and non-housing inflation rate will close or even be reversed.