Suburban Rental Surge: A Shift to Long-term Living
The COVID-19 pandemic triggered a significant change in housing preferences, with a surge in families relocating from major cities to suburban areas. This migration, initially driven by the need for more space and remote work opportunities, is showing signs of becoming a long-term trend. Several factors are contributing to this shift, including rising mortgage rates and soaring home prices, along with growing concerns about safety and homelessness in urban areas.
Pandemic-Driven Exodus to the Suburbs
At the onset of the pandemic in 2020, remote work arrangements prompted many white-collar professionals to trade their cramped city apartments for more spacious suburban homes. This initial wave of migration laid the foundation for what could be a lasting transformation in housing patterns.
Mortgage Rates and Home Prices Influence Rental Stays
Escalating mortgage rates and skyrocketing home prices are compelling families to extend their rental stays rather than entering the challenging for-sale housing market. With mortgage interest rates reaching as high as 7% and home sale prices hitting record levels, renting in the suburbs remains an attractive option.
Rising Crime and Homelessness Nudge Renters Towards Suburbs
The surge in urban crime and homelessness has further accelerated the shift towards suburban living. Renters are increasingly valuing the safety and tranquility offered by suburban communities, making them more appealing places to call home.
Affordability Concerns Spark Rent-Control Measures
The increasing cost of renting in the suburbs has raised concerns about affordability. In response, some local governments have implemented rent-control measures to protect tenants from steep rent hikes.
Suburban Rents Surge Ahead of Urban Areas
According to a report from Apartment List, suburban rents have surged by 26% from March 2020 to July, outpacing the 8% gain in urban areas. This trend is evident in 28 out of 33 metropolitan areas analyzed, signifying a significant nationwide shift.
Portland’s Striking Rental Disparity
Portland, Oregon, provides a striking example of this rental disparity. While the city’s population decreased by nearly 3% between 2020 and 2022, suburban rents in Portland surged by 23%, in stark contrast to the mere 2% increase in the city center.
Housing Market Challenges and Single-Family Home Rentals
Challenges in the for-sale housing market, including high mortgage rates, have led to declining home sales. Conversely, single-family home rents continue to rise in various parts of the country. For instance, data from Core Logic reveals that house rents in the Chicago, Boston, and Orlando metropolitan areas increased by over 5% in June compared to the previous year. Real estate research firm Green Street predicts that single-family home rental landlords will achieve the highest returns among all real estate owners this year.
Suburban Apartments Remain Resilient in 2023
Although apartment asking rents experienced a slight decline in 2023, this reduction was less pronounced in suburbs like Charlotte, North Carolina, and St. Louis, where rents continue to rise. In contrast, rents in adjacent urban cores are experiencing annual declines.
St. Charles, Missouri’s Booming Rental Market
In St. Charles, Missouri, just a half-hour drive from downtown St. Louis, tenants have recently started moving into the Chapter at the Streets, a newly constructed 245-unit apartment building. Developer CRG has already leased 25% of the units, surpassing their initial expectations. This growth in the St. Charles market can be attributed to population expansion, limited new rental supply, and a challenging home sales market. Shawn Clark, CEO of CRG, pointed out, “With higher interest rates, folks who were considering purchases are maybe reconsidering it.”
Suburban Population Growth Amid Urban Decline
Nationwide, suburbs have witnessed population growth, often at the expense of major metropolitan areas, which collectively lost over 800,000 residents between 2020 and 2022, according to a Wall Street Journal analysis of U.S. census data. For instance, between 2020 and 2022, St. Charles’s population grew by nearly 1%, while the city of St. Louis saw a 5% decline in its residents during the same period.
Investor Confidence in Suburban Rental Properties
Even before the pandemic, significant real estate investors recognized the potential of suburban rental properties. In 2012, 79% of apartment-building sales occurred outside central business districts, a figure that climbed to 89% by 2019, according to MSCI Real Assets.
Suburbs Respond with Rent-Control Measures
In response to rising rents, some suburbs are implementing measures to combat the trend. Both Prince George’s County and Montgomery County, Maryland, have introduced rent-stabilization laws this year, limiting annual rent increases. Montgomery County Councilmember Natali Fani-González described the policy as “a permanent solution to protect tenants.” Pasadena, California, near Los Angeles, implemented a rent-control law last year.
Closing Gap Between Urban and Suburban Rents
The gap between urban and suburban apartment rents may soon narrow as developers construct more suburban apartments, intensifying competition and potentially slowing rent increases. In certain regions
, suburban apartment rents are rapidly approaching the cost of renting a single-family home, which could lead to more individuals opting for home rentals. As Jim Giblin, a multifamily building broker with the Mogharebi Group in Portland, Oregon, pointed out, “The spread between renting a home and renting an apartment is becoming narrower and narrower. At some point when they match, you’ll see more people renting homes.”
