Magazine article Mortgage Banking

Rent Growth vs. Job Growth vs. Pipeline

Magazine article Mortgage Banking

Rent Growth vs. Job Growth vs. Pipeline

Article excerpt

Job growth is the strongest driver of apartment rent growth, but the supply pipeline--and renter demand--also hold a powerful pull on rent trends, analysts say.

Adam Klingher, managing director of multifamily originations in the Chicago office of New York-based Pillar Finance LLC, said the multifamily market continues to perform well from both an operational and investment perspective. "Rent growth has been strong for the last few years and this continues in all areas urban, suburban and rural and all properties types from class-A properties to class-C," he said.

"Effective rent growth correlates to job growth 83 percent of the time," said Ron Johnsey, president of Dallas-based Axiometrics Inc. "When these two statistics don't correlate, a market experiences high job growth and low effective rent growth or vice versa. In such situations, something other than job growth influences effective rent growth."

Johnsey said markets receiving a sudden excess of apartment deliveries "will require very strong job markets to absorb new units without negatively affecting rent growth and markets where new supply is lacking will generally enjoy strong effective rent growth."

Nationally, apartment rent growth reached a 35-month high of 4.3 percent in September--the strongest since October 2011's 4.4 percent growth. Axiometrics examined the relationship between job growth and rent growth, and found that metros such as Detroit and Albuquerque, New Mexico, with weak or negative job growth also saw weak rent growth. Employment in Detroit fell 0.2 percent while Albuquerque's workforce contracted -0.3 percent in the third quarter and both saw just 2.8 percent rent growth--more than a full percentage point below the 3.9 percent national average.

Other markets, including Dallas, Houston and Austin, Texas, saw high third-quarter job growth (3. …

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