It’s no secret that the American real estate market is red hot - especially from a home sales angle. What about from the rental side?
To do this, let’s grab a couple datasets from Fidap - including the Apartment List dataset -
Like its home sales counterpart, rents in American cities have risen over the past few years. However, its rise in 2021 has been nothing short of meteoric, even when averaged out across all metropolitan areas (check out the query here).
The rent for the average residential property in America’s metropolitan areas has risen especially sharply in 2021 - that’s a straight line to the moon.
Whoever predicted the death of American cities in the throes of the pandemic in 2020 got it quite wrong it seems.
This increase can also be expressed as a percentage, month-on-month.
We can definitely see some seasonality here - where rents tend to rise in the summer months by about 0.5%-1% - but 2021 has been a drastic exception. Rents have risen by more than 2% month-on-month since May 2021!
This leads to the question of where. Which metropolitan areas have seen the biggest increase in rents? The answer is surprising. Instead of major metropolitan areas such as Los Angeles, New York City, and the Bay Area, cities which have logged the biggest increases are actually second and third-tier cities. (see query here)
Casper, WY?!? What’s going on there? This guy looks angry - maybe because his rent went up by 62%!
Of course, this is not uniformly distributed. There are cities where rental growth has stagnated. Using Census data, we can see if there is any relationship between population size, density, and rents.
Population density per square mile is plotted on the X-axis, overall rent on the Y-axis, and each point is a metropolitan area in America. In general, denser cities command higher rents. That makes sense.
This can also be expressed a little differently by grouping the cities into 20 equally-sized buckets based on their population density in descending order. Then, the mean rents for each bucket is calculated and the results expressed as a bar chart. This bar chart shows that rent estimates decrease with population density.
In the scatter plot above, population density per square mile is plotted on the X-axis in logarithmic scale, percentage change in rent since January 2020 on the Y-axis, and each point is a metropolitan area in America. We see that although rental growth in America’s cities tends to be higher in more densely populated cities, there have been quite a few significant outliers in less densely populated ones.
In any case, the results we see here are in line with what we have observed in terms of housing sales. Major metropolitan areas still see significant transaction volumes and rental activity. However, some of the counties with the biggest increases in prices and transaction volumes were located outside major metropolitan areas.
Clearly, while American cities have not died, some are livelier than others. Bigger is not always better.
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