Luxury Apartment Rent Growth Slowing
- Apartment rent growth has slowed nationwide over the past year.
- In most large metros, this slowdown has been more acute in luxury ZIP codes than metro wide.
After growing at a blistering pace for much of 2015, apartment rents across the county are growing at a slower pace thus far in 2016 – and the slowdown has been particularly dramatic on luxury apartment rent in higher-end ZIP codes.
Overall, apartment rents nationwide grew by 3.6 percent for the year ending in April 2016, almost 2 percentage points slower than the 5.4 percent pace reported for the year ending in April 2015. And in 23 of the nation’s 35 largest housing markets, the slowdown in rent appreciation has been more acute in luxury ZIP codes than metro-wide (figure 1). In four additional markets – Washington, D.C., Sacramento, Miami-Fort Lauderdale, and Kansas City – broader apartment rent growth has accelerated from 2015, but it has accelerated less in luxury ZIP codes than in the metro as a whole.
Figure 2 digs deeper into several specific examples. In the Houston metro, essentially all ZIP codes where the median rent per square foot is above $1.10 have experienced a deceleration in apartment rents. In the New York metro, the natural cutoff appears to be closer to $2.30 per square foot and in the San Francisco metro, it appears to be around $3.80. The exception is the Seattle metro, where higher apartment rent growth continues to accelerate in luxury ZIP codes, although the acceleration has perhaps not been as dramatic as lower-priced ZIP codes. (Part of this trend is attributable to rapidly rising rents in neighborhoods north of Seattle’s Lake Washington Ship Canal.)
To identify luxury ZIP codes, we ranked each ZIP code in each metro by the median rent per square foot as of April 2015 and then compared annual appreciation rates for apartment rents in luxury ZIP codes and metro-wide for April 2015 and April 2016.