Renters make up a significant share of annual moves each year in the U.S. as they continue to be attracted to better weather, lower costs of living, stronger job prospects and/or wanting to be closer to family. Here is how it affects relocating employees.
Areas Most Impacted
There is a clear migration trend for renters:1
- More want to move out of the Northeast and West; and
- The South and Midwest remain popular destinations.
But key factors impact both those simply wanting to move and those relocating at the request of an employer: availability, competition, and affordability.
What reasons are behind this and what assistance is available for renters?
In most markets, the biggest challenge for renters moving is a serious shortage in available housing and an underbuilding gap of 5.5 million to 6.8 million units.2
Jeffery Hayward, Executive VP and Chief Administrative Officer at Fannie Mae, points out most housing-cost-burdened households are not just in coastal or metros, but also in less expensive metros – like Fresno, Charlotte, and Las Vegas. Even smaller metro areas lack housing that’s affordable.
Consider the following “availability” factors:
- Restrictive zoning increases the challenges nationally. Robert Dietz, Chief Economist at the National Association of Home Builders. "In certain neighborhoods you simply cannot build townhouses. You have to build single family units on lots that are bigger than the market wants." 3
- Institutional investors continue to purchase and rent out properties, owning about 700,000 of the 20 million single-family rentals in the U.S. today.4
- Renters also face the “Airbnb Effect” where landlords convert long-term rentals for local residents to short-term vacation housing, thus decreasing housing supply. A study found short-term rentals have caused a larger reduction in affordable housing than any other income level of rental housing.5
Competition and Affordability
An average of 14 apartment seekers competed for a single rental across the U.S., but it’s even more challenging around ultra-competitive areas. San Diego – the 13th most competitive apartment market in the nation – has an average of 22 apartment seekers competing for each of the few available apartments.6
Since COVID, renters also face higher monthly leases with an overall increase in rents of 6.2 percent in 2022, marking the second-highest annual rent growth in this century, according to Yardi Matrix’s multifamily report. That growth rate is behind only 2021’s nearly 15 percent rise.7
However, that growth rate is well behind the rent growths in popular markets. From November 2021 to November 2022:
- Chicago was among the most robust in the Midwest region with average rents rising by 8.6 percent - $1,773 to $1,925. 8
- Phoenix rents surged 26 percent.
- Las Vegas rents jumped 23 percent.
- Charlotte residents saw rents climb 13 percent.9
- Florida metro areas of Naples, Sarasota, and Tampa jumped between 29 percent and 39 percent the past two years.10
Renter Expectations, Experts and Effective Efforts
For companies that need to relocate employees to challenging rental markets, setting expectations in advance and pairing your people with the right local experts will result in the most effective efforts to compete for the best rental opportunities.
- Relocating employees often must look farther out from a job site and accept longer commute times than years’ past – and may still have difficulties locating adequate housing.
- Managing renters’ expectations earlier is important: they need to know finding an apartment has become increasingly difficult and the type of housing they are accustomed to may now be beyond their budget.
- In the past, renters may have been offered only a lump sum and expected to make appropriate relocation decisions on their own. Such an approach rarely ends up working out well in the current environment given the competitive market and low housing availability.
- It is critical to work with local, on-the-ground experts who really know the rental market in each location. NEI is independent, so we can work with the most reputable and qualified rental agents, Destination Service Partners, and real estate brokers to preview potential apartments and rental homes before showing them.
Following a needs analysis, NEI’s Account Executives arrange for customized area orientation tours (if authorized) and provide access to our city search tool to acquaint themselves with the area before the home finding trip. Various service plans are available based on one’s program needs:
- NEI’s Home/Rental Finding Assistance minimizes time required for relocating employees to find suitable housing – whether as buyers or renters. We refer the families to reputable, qualified real estate brokers or rental agents to help in searching for their new home based upon specifics given through the initial needs analysis. NEI’s Rental Guide provides pertinent information to consider when leasing a property.
- Under NEI’s Extended Rental Assistance Program, we provide each agency with verbal and written instructions to anticipate the needs of employees, as well as clear expectations, required timelines and reporting requirements for the rental search. Our Account Executive follows up with the rental finding agent and calls the transferring employee after the initial contact, during, and just after the rental finding trips to ensure satisfaction. They remain in contact with the employee until a lease is finalized.
The Extended program may also include an area orientation tour to acquaint the employee with the new area and a guided tour of available rentals to quickly identify the most likely areas to meet the employee’s housing needs. Various service levels can be selected based on your program needs. This program is highly recommended for those moving to large, high cost of living areas.
Relief in Sight?
There could be good news for renters across the country in the months ahead:
- Rents for both single-family homes and apartments are rising at a slower pace as of December 2022, but relief rates vary by market.11
- Experts forecast an increase in the number of new homes, condos, and apartments coming to market. Apartment deliveries are projected to spike with more than 917,000 units under construction across the U.S. – the second largest volume increase the country has ever seen.12
- Home prices may decline in 2023 giving renters a potential window to purchase a home. Economists’ predictions for U.S home-sale prices run the spectrum for 2023: some feel it could remain stable and even re-bound again later this year, others expect a drop of 10 percent or more if there’s a sharp recession.
"This spike in prices in the short term should be followed by moving toward a new equilibrium, which does mean a bit of a cooldown in housing costs," senior economist at Zillow, Jeff Tucker.13
For more information on how NEI can help your company and your relocating renters in today’s volatile market, please reach out to your NEI representative.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
1 Rent.com; 2 National Association of Realtors; 3 National Public Radio; 4 Roofstock.com; 5 2021 Carnegie Mellon University; 6 RentCafe.com; 7 Yardi Matrix; 8 Zillow; 9 Douglas Elliman and Miller Samuel; 10 CoStar Group; 11 CNBC/CoreLogic; 12 RealPage Market Analytics; 13 USA Today.