Apartment Vacancy Rate Declined in Q1

Effective Rents up 15.6% Year-over-year

Reis reported that the apartment vacancy rate was at 4.7% in Q1 2022, down from 4.8% in Q4, and down from a pandemic peak of 5.4% in both Q1 and Q2 2021.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999).  Note: Reis is just for large cities.

Reis also reported the effective rents were up 2.5% in Q1 compared to Q4, and up 15.6% year-over-year. Last week, I posted a graph of the year-over-year change for various measures of rent. The Zillow measure is up 17.0% YoY in February, up from 16.2% YoY in January. And the ApartmentList measure is up 17.1% as of March, down from 17.7% in February.

Reis’ survey (dashed red) is quarterly and shows a similar increase in effective rents.

Effective rents declined significantly in the early stages of the pandemic, and even with the recent surge in rents, rents are only up 5.9% annualized over the last 2 years. So, a large portion of the rent increase over the last year was just making up for the previous declines.

For some cities, effective rents were up significantly more, especially in some cities like Albuquerque, Jacksonville and Phoenix. Other sunbelt areas like Las Vegas, Florida, and Southern California also saw huge rent increases.

Completions and Net Absorption

With the release of the February Housing Starts report, I noted there were the most housing multi-family housing units under construction since 1974

Currently there are 784 thousand multi-family units under construction.  This is the highest level since June 1974!

This is that same story for the Reis data for completions and absorptions. For the large cities that Reis tracks, apartment completions were only about 50% of normal over the last 2 quarters, and absorption was about 70% of normal, so there was a mismatch in demand and supply (due to construction delays), and that pushed down the vacancy rate and pushed up rents.

The completion of all these units under construction should help with rent pressure.

Apartment vacancy data courtesy of Reis.