Developers are building plenty of apartment buildings. However, 75 percent of these units target the country’s wealthiest renters, according to apartment-listing company RentCafé. That leaves few new market-rate, or affordable, apartments for renters who earn a moderate or low income.
The rents for most new units are so high that they’ll consume more than 30 percent of the annual income of an increasing number of renters, according to apartment-search website Abodo. (It long has been a financial golden rule that you shouldn’t spend more than 30 percent of your income on rent.)
Want to buy a condominium, or condo? The challenge here: finding new-condo construction. Developers are focused on apartments, because consumer demand is significant today. (The national apartment-vacancy rate stood at about 4 percent over the past 2 years, according to commercial real-estate company Marcus & Millichap Real Estate Investment Services.)
So, new condo buildings are difficult to find, particularly in the urban centers of cities. Therefore, you should prepare to settle for older construction or suburban living.
Even if you find a condo that you like in the middle of the city, it might not remain a condo for long. Developers increasingly turn condo buildings into apartment buildings, which is known as deconversion. Of course, this also has implications for current condo owners: Even if you don’t want your condo to become a rental, you might not have a choice.
BUDGET-BUSTING. Joint Center for Housing Studies at Harvard University says the share of all U.S. households that rented rose to 37 percent in 2015 from 31 percent in 2005. That’s the highest that the percentage has been since the middle of the 1960s.
According to the results of a survey by NHP Foundation, which is a nonprofit provider of affordable housing, a majority of millennials delayed or rethought their pursuit of the “American Dream” to own a home.
So, the rising rents for apartments come at an unfortunate time.
ApartmentList.com reports that in November 2016, the national median rent was $1,100 for a one-bedroom apartment and $1,250 for a two-bedroom unit. Each figure is 1.3 percent higher than it was in December 2015.
The apartments that have the highest median rents tend to be clustered in big cities and urban centers. ApartmentList.com reports that the median rent in December 2016 for a one-bedroom apartment in Los Angeles stood at $1,880, and at $2,600 for a two-bedroom apartment. Those figures also represent an increase of 1.8 percent from the same month 1 year earlier. In Seattle, the median monthly rent for a one-bedroom unit stood at $1,680 in December 2016, while that figure for a two-bedroom unit was $2,240. These figures jumped 4.1 percent since the same month in 2015.
RentCafé reports that the average national apartment rent jumped 4.7 percent in September 2016 compared with September 2015, in conjunction with the fact that most new apartments tend to cater to the high-end rental market.
Defining what is and isn’t a high-end apartment can be tricky. Nadia Balint, who is a spokesperson for RentCafé, says the company defines high-end units by using the 30-percent formula: An apartment is considered to be affordable when its rent consumes 30 percent or less of the median monthly income of residents who are in the rental market. In Chicago, RentCafé considers an apartment to be high-end when it has a monthly rent of at least $2,500.
According to RentCafé’s research, 75 percent of apartments that were built in 2015 fall into the high-end category.
That percentage is rising, too. RentCafé reports that the ratio of high-end apartments to other apartments that were built in 2015 increased by 63 percent from the numbers that were reported in 2012.
It’s clear, then, that finding an affordable apartment won’t get any easier.