Rents are increasing nearly everywhere, with no signs of easing up. Average rental listings jumped 14 percent in the Biden administration’s first year, according to real estate firm Redfin.
Rent inflation was already an issue before the pandemic, but COVID-19 regulations pivoted the trajectory of price disruption. Emergency rental assistant programs expedited housing funds to tenants. And, allthough some eviction protection emergency orders caused headaches for landlords, rent prices are clearly rebounding in 2022, piquing investment interest in the multifamily sector.
Multifamily investment has seen incredible growth over the past several years. The demand for rental housing, specifically apartments, continues to surge, despite rent inflation.
Why the interest in apartment living? A pricey and competitive housing market certainly helped, along with an increase in millennial rental applicants. Home prices skyrocketed last near by nearly 19 percent, leaving potential homeowners discouraged.
Moreover, many affluent renters are choosing not to buy, and therefore are flocking to apartment buildings. Luxury apartments specifically are a growing sector, especially on the East Coast and in warmer climates such as Florida, Arizona, and in more affordable cities like Nashville and Charlotte.
However, there is a dramatic shortage of rental housing nationwide, which can cause uncertainty in municipalities which are seeing recent population growth. Affordable rental housing continues to see high demand and meager supply, and the gap between this supple and demand is, if anything, only growing.
This favorable supple-to-demand ratio means that despite new construction costs which are at an all-time high, ROI remains strong for multifamily investors. Multifamily investments often offer significant tax benefits, which are an enticing selling point in a time period where income tax rates are a political football. Moreover, multifamily investments are also perceived to offer a hedge against inflation, a strong advantage given the recent CPI prints in the 6-7 percent range.
All of this means that negative news headlines need not be a headwind for 2022 multifamily investors; higher rents, higher inflation, and higher construction costs have barely made a dent in the sector’s appeal.
“Multifamily is a proven asset class during periods of recession and inflation,” said Andy Hagans, co-founder of MultifamilyInvestor.com. “That’s part of its appeal. Investors want higher returns, but they also want to see that downside protection. 2022 is a perfect example. Investors perceive policymakers as incompetent, they see that inflation has spiked, and rent prices are spiking, but the multifamily asset class is still perceived as rock solid.”