US Real Estate Report

US Real Estate Report

Despite growing number of renters in the market, most new apartment construction is high-end units

– The majority of new construction built since 2014 has been at the top of the market in large markets analyzed by Zillow.

– The lack of supply among the least expensive third of rental homes and overall strong demand for rentals is driving up rents.

– Rents among the cheapest apartments are outpacing the growth of the entire rental market in 15 major markets analyzed by Zillow.

– Over the past year, 11 of the 15 housing markets in Zillow’s analysis saw double-digit rent appreciation among low-end apartments.

Median rent for the least expensive multifamily rental homes is rising faster than median rent overall, and only a small portion of all new apartments is at the low endi, according to the latest Zillow® analysis.

Instead, most new apartment construction is at the top of the market, where luxury units command top prices from wealthy renters.

Zillow analyzed median rents in 15 major housing markets across the country and found that median rent for the least expensive third of apartments was outpacing the overall rental marketii.

The trend is especially prevalent in California. In Sacramento, for example, the price of the least expensive rental homes rose 33 percent over the last year, while overall median rent rose just 7 percent.

Cheaper apartments were more in line with overall rent appreciation in Denver and Seattle. The least expensive rentals rose 9 percent in Denver over the past year, while the rental market as a whole rose 7 percent. In Seattle, the least expensive rental homes rose 14 percent and the entire rental market rose 9 percent.

“There’s a growing divide in the rental market right now,” said Zillow Chief Economist Dr. Svenja Gudell. “Very high demand at the low end of the market is being met with more supply at the high end, an imbalance that will only contribute to growing affordability concerns for all renters. We’re simply not building enough at the bottom and middle of the rental market to keep up with demand. As a result, these segments are becoming very competitive, as both new renters look to find their first place and existing renters get shut out of homeownership because of extremely limited for-sale inventory. Apartment construction at the low end needs to start ramping up, and soon, in order to see real improvement.”

In Tampa, Fla., 93 percent of apartments built after 2014 were among the most expensive. In Miami, 69 percent of listed new construction was among the most expensive and just 11 percent was among the least expensive.

Charlotte, Denver and Seattle had the smallest percentage of low-end construction built after 2014 — just 4 percent of new construction in Charlotte was among the least expensive third of rental homes and only 7 percent in Denver and Seattle.

Metropolitan Area

Zillow Rent Indexiii (ZRI) among Low-End Apartments

Low-End ZRI YoY Change

ZRI Among High-End Apartments

High-End ZRI YoY Change

Entire Multi-family Rental Market ZRI

Entire Multi-family Rental Market ZRI YoY Change

Percent of New Construction in Low-End Since 2014

Percent of New Construction in High-End Since 2014

Los Angeles-Long Beach-Anaheim, CA

$       2,029

27.5%

$   3,176

20.8%

$       2,370

6.7%

17.2%

53.5%

Chicago, IL

$       1,155

6.4%

$   1,947

-1.0%

$       1,580

1.0%

8.5%

79.2%

Dallas-Fort Worth, TX

$       1,020

16.3%

$   1,712

8.0%

$       1,324

5.5%

11.2%

63.5%

Philadelphia, PA

$       1,102

17.9%

$   1,792

6.7%

$       1,234

3.0%

14.2%

68.9%

Washington, DC

$       1,551

7.7%

$   3,229

25.7%

$       1,904

1.0%

13.3%

55.7%

Miami-Fort Lauderdale, FL

$       1,482

14.2%

$   2,367

6.3%

$       1,626

5.3%

10.7%

69.4%

Boston, MA

$       1,908

17.3%

$   2,684

-1.0%

$       2,178

3.9%

16.8%

68.4%

San Francisco, CA

$       2,456

24.6%

$   5,944

29.3%

$       3,026

9.2%

n/a

56.3%

Seattle, WA

$       1,263

13.7%

$   2,409

20.8%

$       1,763

8.7%

7.4%

65.4%

San Diego, CA

$       1,754

21.7%

$   2,992

21.9%

$       2,101

6.1%

11.2%

64.2%

St. Louis, MO

$          693

5.5%

$   1,059

8.1%

$          936

0.4%

25.3%

61.6%

Tampa, FL

$          934

13.1%

$   1,513

16.6%

$       1,196

5.7%

n/a

93.1%

Denver, CO

$       1,164

8.6%

$   2,060

13.9%

$       1,604

6.5%

6.6%

60.0%

Charlotte, NC

$          868

12.0%

$   1,535

14.0%

$       1,195

3.4%

4.2%

71.3%

Sacramento, CA

$       1,186

32.7%

$   1,946

28.4%

$       1,350

7.4%

n/a

n/a

About Zillow
Zillow® is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow’s Chief Economist Dr. Svenja Gudell. Dr. Gudell and her team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Zillow also sponsors the biannual Zillow Housing Confidence Index (ZHCI) which measures consumer confidence in local housing markets, both currently and over time. Launched in 2006, Zillow is owned and operated by Zillow Group (NASDAQ: Z and ZG), and headquartered in Seattle.

Zillow and Zestimate are registered trademarks of Zillow, Inc.

i A property is considered new construction if it was built in the calendar year of, or before, the year it was listed on Zillow. In this analysis, the rental listing years included were 2015 and 2016, so new construction is anything built in 2014 and on.

ii Rentals in each metropolitan region are assigned to the bottom, middle, or top tier of rentals based on their estimated rental price. Each tier contains one-third of the rentals in the metro region, and the thresholds defining each metro tier are computed separately for each metro. For data on the middle tier of rentals in this analysis, refer to the Zillow Rent Index (ZRI), here.

iii The Zillow Rent Index (ZRI) is the median Rent Zestimate® (estimated monthly rental price) for a given geographic area on a given day, and includes the value of all single-family residences, condominiums, cooperatives and apartments in Zillow’s database, regardless of whether they are currently listed for rent. It is expressed in dollars.

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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