INFORM

INDUSTRY NEWS & MARKET TRENDS

By Michael Miller, National Apartment Association

With so much change already upon the industry, what can we expect throughout 2022? Some industry leaders break down the current market of high rent prices and occupancy rates and examine trends of inflation, scarcity and resignations.

The rental housing industry continues to endure the effects of the COVID-19 pandemic, and no one—whether living or working in apartments—has escaped its assorted impacts. Rental housing professionals and their communities have realized a multitude of implications due to the changes happening in the industry and economy and adjusted accordingly, at one point on the fly, but now using strategic planning and processes. These implementations of processes and procedures are intended to address changes in rent prices, inflation, the labor market, and technology.

“There are so many challenges in front of us right now. Two current issues we face today are the ever-evolving legislative issues as well as delays in the distribution of the Emergency Rental Assistance Program (ERAP) funding, which is meant to assist our residents impacted by COVID,” says Don Brunner, President and CEO of BRG Realty Group

and NAA 2022 Chairman of the Board. “We as an association continue to offer ideas to assist in the distribution of ERAP funding. One such idea would be to allow management companies to apply on behalf of their residents. On the legislative front, our Governmental Affairs team is working hard on behalf of our members, keeping us up to date on changes as they occur.”

Ronda Puryear, CAM, CPM, president, residential management with Management Services Corporation (MSC) and NAA 2022 chair-elect, sees two major challenges going forward: The “Great Resignation” and affordable housing, both of which she provides solutions for in 2022. Inflation is also another item Puryear hopes to see ease during the next 12 months.

While rent growth slowed a bit toward the end of 2021, prices are still well ahead of what was typically seen during pre-pandemic years. The national rent index from Apartment List increased 0.1 percent in its December National Rent Report, which was the slowest month-over-month increase in 2021. Since January 2021, median rent growth increased nearly 18 percent. This is compared to 2.6 percent rent growth, which is what was seen, on average, in the January-to-November window during 2017-2019.

“What I expect is, at least during the first half of 2022, we’re going to see this robust market continue through June, and I think we’re going to see rents continuing to go up,” says Chris Burns, senior vice president with Lincoln Property Company and NAA 2022 secretary. “We’re going to see pretty good absorption, and we’re going to see a lot of transaction volume across the Southeastern market because there’s still a lot of pent-up capital that needs to be invested, and deals are trading at record prices in all markets. Everybody is a seller today and, fortunately, for every seller, there’s a buyer at a good price.”

The talk of higher rent prices and the growth that has been experienced during the pandemic “feeds into the affordable housing discussion that we are the problem,” Puryear says. “We need to continue to work with legislators, with localities, and with national housing institutions to let them know we are here as a partner, to be part of the solution rather than being seen as the problem.”

The need for affordable housing is great, and the industry is being unfairly targeted as the reason behind the lack of affordable housing, according to Puryear. She wants to educate Congress and work with local and national housing coalitions to help solve the problem.

“NAA is working hard to provide dependable housing to all who qualify,” says Brunner. “As affordable housing continues to be part of legislators’ agendas at the local, state and national levels, it is key that we as an association are present at the table at every level.”

In October 2021, inflation in the U.S. increased 6.2 percent during the previous 12 months, which is a 30-year high. According to a December 2021 Gallup poll, 45 percent of American households report inflation has caused them hardship – 35 percent moderate hardship and 10 percent severe hardship.

The impact of inflation on rent prices is nothing but astounding. It has hindered AMLI Residential employees from living at the communities at which they work. “In an effort to continue to attract and retain great service associates, we began offering additional housing allowances for all communities under 400 units,” says Traci Hall, president – West Region with AMLI Residential. “We had typically only offered one per property for service associates, and now we are offering two. No one can argue it is valuable to have our team live onsite.”

According to the Beige Book from the Federal Reserve, labor shortages across the nation and sectors have hindered economic activity, consumer spending and manufacturing. In the latest data from the Bureau of Labor Statistics, 4.2 million people quit in October 2021, down from roughly 4.4 million in September 2021, but up from 3.4 million in October 2020. The real estate and rental and leasing industry saw 48,000 quits in October 2021, 11,000 more than the previous month and roughly unchanged from October 2020.

“Recruiting and retaining in our industry is our biggest challenge,” explains Hall. “There is incredible pressure on compensation, and I truly believe that if you provide the right culture and engagement for your team, they will stay and continue to thrive and create value. After a moderate year of turnover in [2020], 2021 will likely see the highest turnover of employees in five years.”

Multifamily construction has outpaced its single-family counterpart by a wide margin during the past year. According to RealPage analysis of the latest Census Bureau data, multifamily permits increased 34 percent between October 2020 and October 2021, while single-family permits were down more than six percent. Multifamily starts jumped nearly 40 percent year-over-year compared to an almost 11 percent drop in single-family. However, construction delays have impacted multifamily completions, which are down nearly 32 percent from October 2020. In contrast, single-family completions are up 3.5 percent.

“The one technology that got really expedited with the pandemic was the whole concept of self-guided touring,” Burns says. “While that had come to the market, certainly before the pandemic started, it forced a lot of us to get comfortable quickly with that concept because when we were on lockdown and didn’t really have people or our people were locked in the office and couldn’t interact with customers, the whole self-guided—in order to get people out to physically see units—became a great option in the playbook.”

The virtual aspect of the industry existed before the pandemic, but it gathered steam as office closures and other shutdowns continued. Prospective residents are now able to visualize their potential new home in a better light, notes Brunner, who also added virtual tours have improved during the pandemic.

“We learned, and the residents learned they probably want a little more of their own space, particularly outdoor space,” Burns says. Balconies and patios became extremely important for those who had the opportunity to step outside. “We went through a period where balconies weren’t as important and patios weren’t as important, particularly in inner cities. I think those people who were in units without balconies quickly learned that the people in the building across the way that had balconies could at least go out and sit on their balcony during the day and get some fresh air. Having outdoor space and balconies in the common areas; outdoor space where people can get outside; and some amenity space and gathering space to be able to social distance means that residents are still able to live outside the unit to a certain extent.”

From an industry advancement point of view, the pandemic hasn’t been all negative. “There are positives that have come out of the pandemic – new systems that we have in place that won’t go away that I think are much better,” Puryear says. “Things that we’re doing that help people have more time at home with their family, that help people get home earlier in the day or finish their day from their home office, which creates a better mental state for everyone.”

“The industry, in general, is in a good trajectory, better than it has been … so, it appears to be a bright future,” says Rose.

Occupancy in the U.S. is at an all-time high. At 97.5 percent in November, RealPage states occupancy is bucking the trend seen in previous years when rates typical see a downturn during the winter months. “Unless there’s something wrong in the submarket, almost every submarket you go to has record occupancy,” Burns says. “People haven’t been moving, not so much because they can’t afford to buy a house, but there hasn’t been any product, because that market has been so tight. So, a lot of those people aren’t moving.”

“At renewal time, it may even make it challenging for some to continue to keep pace, and then they start to look at other options like doubling up or moving from the city center to the suburbs or some of those natural shifts occur if the pricing dynamic gets upside down,” Burns says.

Michael Miller is the managing editor for NAA. This article was reprinted with permission from the NAA.