National Housing Market OutlookApartments

Apartment Rents Don’t Grow to the Sky

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Alex Thomas

October 14, 2022

Co-authored by Jesse McConnico

Rents are set to fall in many areas around the country, which is exactly what the Fed needs to help get inflation under control. This short-term pain for rental investors should be offset by the long-term gain of a stable economy and lower borrowing rates.

Every quarter, we summarize the earnings calls of 6* publicly traded apartment REITs (Real Estate Investment Trusts) for our research clients, and our consultants have been busier than ever helping apartment and build-to-rent developers understand local market dynamics as they build and lease new communities.

The influx of capital into the industry has resulted in a 36-year high of multifamily starts and a 34-year high of multifamily completions, which wasn’t enough to meet the record level of demand that was stimulated by relocations and working from home. As a result, rents soared.

Now, the combination of recession concerns, requests to return to the office, rents that are just too high, and a multi-decade high of new rental supply are all combining to cause rents to soften and potentially decline.

Apartment REIT executives agree. Here are the tremendous results and muted expectations that they shared.

2022 results

  • +12.5% YOY same-store blended rent growth, an all-time high. Strong job growth, income growth, and household formation bolstered demand in nearly every market, even those with elevated levels of supply.
  • ~8.5%–15% loss-to-lease (the ability to raise rents on existing tenants due to the difference between in-place rents and market rents) due to significant hikes on new lease rents over the past year gives apartment REITs considerable runway to push rates higher.
  • 43% turnover, an all-time low as the twin shocks to home payments of double-digit YOY home price growth and 5%+ (6%+ today) mortgage rates locked even more renters out of ownership.
  • 96.4% same-store occupancy, down slightly on a YOY basis but still above typical 2Q levels during pre-pandemic years.

Muted Expectations

  • AvalonBay Communities: “We’ve assumed that [rents] will decline, just at a more modest pace than pre-COVID periods would typically dictate.”
  • Essex Property Trust: “What we are expecting is normal seasonality. We do have headwinds from tougher year-over-year comps. Last year, in the first half, our blended lease rate was -4%. But in the second half, it surged to about +13.25%. That’s the tough year-over-year comp.”
  • Equity Residential: “We assume we’re going to have rents peak somewhere in this first or second week of August and then have a normal kind of trail off in rents until you get to that January period.”

Falling Values

  • AvalonBay Communities: “We’ve seen [market cap rates] widened by approximately 50 basis points in many markets.”
  • Camden Property Trust: “The cost of capital has gone up for pretty much everyone… the game has changed and their return on equities have gone down. We think that values have probably gone down anywhere from 10% to 15%.”
  • UDR, Inc.: “Pricing on the majority of multifamily deals suggest cap rates are probably up 25 to 50 basis points from recent lows depending on market and asset quality. Asset values are largely flat to down 10% versus earlier this year.”

Helped by Homeownership Affordability Problems and Wage Growth

  • Move-outs to purchase a home are at all-time lows and are likely to stay low, given the relative affordability of apartments at 6%+ mortgage rates.

    •  Essex Property Trust: “Rental housing is significantly more affordable versus home ownership. We estimate that it is now over 2x more expensive to buy than rent in Essex markets.”
    • UDR, Inc.: “Multifamily has become incrementally more affordable versus alternative housing options. It is now approximately 50% less expensive to rent than own across our portfolio versus 35% less expensive pre-COVID.”
  • Rent-to-income ratios of 20%–23% are completely within normal ranges and a testament to the strong growth in incomes among new renters that REITs have observed over the last several quarters.

    • Camden Property Trust: “Our apartments are affordable despite the double-digit rental increases. Our residents spend roughly 20% of their incomes for their rent.”
    • Equity Residential: “Our affluent renter base should be able to better weather rising inflation in part due to lower relative rent-to-income ratios and higher amounts of disposable income.”


Watch the apartment market carefully for early signs of job losses, which is something that the Fed wants and is even forecasting. The increase in rental demand due to homeownership becoming less attainable doesn’t mean rents can rise to the sky, and the rental market demand/supply balance can quickly turn upside down when job losses coincide with a lot of apartment completions.

For more information on the apartment market and a comprehensive view on housing demand and supply, or help understanding your local market dynamics, contact us here.

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About The Author

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Alex Thomas
Senior Research Analyst, Macro
Alex assists our research team in tracking macro-level economic and housing trends and data. He also helps cover the fix-and-flip space.

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