There’s been a lot of buzz about the skyrocketing prices in the housing market. Many cities are seeing housing prices soar with double-digit year-over-year gains. But what about rent? Are rents keeping up with the property appreciation in the nation’s largest metros?
Let’s take a look at how rents have grown since early 2020, which cities have experienced the largest rent growth, and which have seen declines since the pandemic began.
Methodology For this analysis, I examined Zillow’s Observed Rent Index (ZORI) and calculated five key metrics to see how rent has performed across 106 metro areas:
- Median rent growth for each city from January 2020 through April 2021: This gives a comprehensive view of changes since COVID-19 started. I’ll call it the “Since COVID-19 Started” (SCS) growth rate.
- Year-over-year (YoY) growth
- Year to date (YTD) growth
- Month-over-month (MoM) growth: Shows what happened between March and April 2021.
Analysis It’s clear that rent has increased in most cities since COVID-19 started. The average growth rate is 5.8%, with a median of 6.8%. That’s significant growth!
To illustrate how many cities have seen rent increases since January 2020, I created a histogram showing the distribution of growth rates. The most common bucket was 6-8% growth, followed by 8-10% growth.
The YoY rent growth chart looks similar. The mean YoY growth rate was 5.2%, with a median of 5.7%. To put this in perspective, the average YoY rent growth between April 2018 and April 2019 (pre-pandemic) was 4%. So, rents grew faster on average during the pandemic than before.
Five cities have seen double-digit growth rates over the last year: Boise, Idaho; Riverside, California; Tucson, Arizona; Spokane, Washington; and Phoenix, Arizona—all in the West.
Beyond the top five, the list becomes more geographically diverse. Memphis, Tennessee, is the first southern city on the list, sitting in sixth place with 9.9% YoY growth. Providence, Rhode Island, represents the Northeast in the eighth spot with 9.7% YoY growth.
Here’s a list of the top 10 performers.
Cities near the top in one category tend to be near the top in all categories. Boise, for example, led in YTD, SCS, and MoM growth. These markets show no signs of slowing down.
To test a hypothesis, I used Zillow’s Size Ranking to see if the SCS growth rate is related to the size of the city. There’s a modest correlation at .36, suggesting that smaller cities tend to have higher rent growth rates.
However, visually inspecting the data reveals a slightly different story. Our histogram showed only eight cities with rent growth of 0 or less: New York, Los Angeles, Chicago, Washington D.C., Boston, San Francisco, Seattle, and San Jose. Seven of these cities are among the 15 largest.
So, while smaller cities generally have better rent growth, the largest cities are faring the worst. The largest cities are seeing declining rents, while smaller cities see significant growth.
For the poorer-performing cities, things aren’t improving. These cities continue to see declining rents. All cities with negative SCS rates also had negative MoM rates (Los Angeles was flat).
What does this mean? These findings support the theory that many Americans are moving out of the largest cities into smaller cities or the suburbs.
Despite the pandemic, most American metro areas have seen significant rent growth since early 2020. Cities with the most explosive growth are not showing signs of slowing down and could be promising for investors.
I believe rent growth will likely continue upward, on average, for the foreseeable future. With inflation, economic expansion, and potential wage growth, many indicators point to continued rent growth.
But what about the large cities still seeing declines? I think things will stabilize quickly, but rents might not start growing again for a few months.
Why? It seems many workers left the big cities during the pandemic to work remotely or live somewhere with more space. As work returns to normal and cities reopen, I expect the demand for rentals in the largest cities to gradually return.