Metropolitan rent prices have been climbing for months. New population figures from the U.S. Census Bureau shed light on one reason why: Most of America’s big cities are suddenly growing faster than their outlying suburbs.
Boil that down, and what do you get? Higher rental demand.
Reporting on the latest Census figures, The Associated Press said this type of shift in population growth has not been seen since prior to 1920 and comes as today’s young adults “shun homebuying and stay put in bustling urban centers” to boost their odds in a fragile job market.
In nearly two-thirds of 51 large U.S. metro areas, city population growth equaled or outpaced that of nearby suburbs, the AP found. The report said the trend was driven by 18- to 29-year-olds — so-called “generation rent” — and noted that a mere 9 percent of 29- to 34-year-olds were approved for a first-time mortgage from 2009 to 2011.
At the same time, rents have been on the rise from Baltimore to San Francisco. The Zillow Rent Index for May shows a correlation of rising rent prices in nearly all 15 cities with the greatest population influx.
The median rent in Austin, TX, which overtook San Francisco as the country’s 13th largest city, climbed 10.8 percent for the year to $1,398. Charlotte, NC added 19,663 to its population and 11.4 percent to its median rent, now $1,106. The stories were similar in San Antonio, El Paso, TX, Washington, DC, Los Angeles and San Jose, CA.
Higher demand, higher rents
Demand for rentals has swelled for several reasons. Mortgage lenders have grown more restrictive. Foreclosures have increased the national pool of renters, and many who can afford to buy are opting to rent instead, fearing a home purchase could lose value and remain hard to sell for years to come.
“The biggest driver of rental demand has been the enormous foreclosure crisis set off by the housing recession,” said Zillow Chief Economist Stan Humphries. “The homeownership rate has plummeted from its high in 2004, and these foreclosed households have to live somewhere. What will keep rental demand high is the fact that many of these foreclosed households will still have impaired credit quality even after the economy has improved.”
Big city rents have risen swiftest in Philadelphia, Pittsburgh, Baltimore, Chicago, San Francisco, and Minneapolis–St. Paul, according to Zillow data. From May 2011 to May 2012, the steepest rise was in Philadelphia, where the median rent climbed 13.1 percent to $1,481. Nationally, rents were up 4.6 percent, even as home values have skidded along near 2003 levels.
“It used to be the dream was graduate college, get a job, start a family, buy a house,” James Halverson, CEO of Halverson and Blaiser Group in Bloomington, MN, said in an interview recently. “Now the younger generation is OK graduating from college, even starting a family, and renting.”
And many of them choose the city.
Chicago’s population, for example, inched upward by 11,522 to top 2.7 million after a decade of steady losses. Zillow figures show the median rent there has risen more than 9 percent in the past year to $1,476.
Chicago property managers said the increases have been fueled by the popularity of luxury high-rise rentals. Tenants who can afford to buy a condo are instead renting to avoid being saddled with a home that may prove difficult to sell. Meanwhile, landlords have scaled back on incentives like offering a free month’s rent to new tenants.
“Two or three years ago, it was still a renter’s market — that’s all gone,” Bryan Pritchard, principal of the apartment management and leasing firm Tricap Chicago, said. Pritchard said in April that downtown occupancy rates were around 95 percent. “If you offer a listing agent less than the asking price, he or she will erupt in laughter.”
Centers of population change
The Census report examined population estimates from April 2010 to July 2011. Larger cities grew at a rate of 1.3 percent, faster than the national rate, with Southern cities growing fastest.
Texas dominated the list of growing places; 8 of the 15 fastest growing large cities — those with a population above 100,000 — were in the Lone Star State. Topping the list was New Orleans, which suffered a population exodus after Hurricane Katrina in 2005. Its population rose 4.9 percent to 360,740.
The fastest growing large cities from April 1, 2010 to July 1, 2011
- New Orleans, LA +4.9 percent to 360,740
- Round Rock, TX +4.8 percent to 104,664
- Austin, TX +3.8 percent to 820,611
- Plano, TX +3.8 percent to 269,776
- McKinney, TX +3.8 percent to 136,067
The fastest shrinking large cities from April 1, 2010 to July 1, 2011