Multifamily is cooling off for investors. Yet for most people, the rent is still too dang high

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Investors in the multifamily residential market are getting hit with a predictable outcome of all their busied activity. Rent increases have slowed significantly throughout the Mountain West region.

Rent upswing in the Salt Lake metro has slowed to well under 5% year-over-year, with some measures showing rents declining in Q4 2022 and Q1 2023. A glut in luxury offerings is likely to bring those figures down further. “Massive supply headwinds for Class A” are the main protagonists of those rent drops, according to RealPage analysts.

A significant increase of 15,000 units entitled and under construction in the Salt Lake metro, added to high finance and construction costs, are likely to cool rent increases and investor enthusiasm in the near-term.

Yet long-term projections continue to be optimistic for investors in Salt Lake, with RealPage analysts noting “excellent population growth, solid employment growth, and lots of quality jobs moving to this market.”

On the other side of the market exchange, rent burdened people along the Wasatch front—spending over 30% of their income on rent—are at eye-popping levels. So are evictions.

Regional snapshot

Salt Lake City is not alone in seeing rents come down. RealPage notes that rents in Phoenix and Reno have stagnated Y-o-Y, a worrying figure for investors there.

2023 projections for downtown Denver, too, show flat rents arriving. Less than 1% rent growth in expected in the Denver urban core, and in neighborhoods where new supply is greatest, rents are coming down.

“We’re a little bit bearish in the short-term, 12-24 months; but in the long-term, Denver’s high quality of life characteristics are expected to continue to drive rent growth” note RealPage analysts Carl Whitaker and Kiara Quarles.

Salt Lake

They call the Salt Lake metro “an impressive market over the last decade.”

Yet the signs of slowdown for investors are manifest – for one, vacancy rates are up to 5.52% in March 2023, slightly above the national average.

And then there are the signs of success. An aggressive building boom is bringing more than 15,000 units to market “in the new few months,” which accounts for over 10% of the market’s existing stock.

Analysts’ forecast for investors is tempered due to the sheer volume of new supply coming. In the next three years, “nearly one-quarter of all supply is expected to come on line, which is simply an incredible figure,” said Quarles.

“Still, we like the long-term view on SLC: excellent population growth, solid employment growth, and lots of quality jobs moving to this market,” she added.

Whitaker summed up the outlook for the Salt Lake metro: “We love the Salt Lake market long-term in the market forecast models, but that near-term with so much supply and higher turnover due to low retention, we think that challenges the market near-term.”

The picture for renters

As recent figures from the Gardner Institute at the University of Utah reveal, renters are still feeling the squeeze.

Dejan Eskic and James Wood presented numbers in early April that show eye-popping rent increases in the last two years—a decade of rent increases in just two years.

While those figures were clearly good news for investors, the burden on people who must rent their abode is widespread and deep. The number of people on the Wasatch Front who spend more than 30% of their income on rent is eye-popping.

Meanwhile, incomes can’t keep up with rent. Evictions are up, and are likely to get worse as Covid-related federal rental assistance has ended.

Yet rent “has peaked,” according to Eskic.

Whether that short-term dip will be sustained is anyone’s guess, as increased supply meets likely long-term demand growth.

Email Luke Garrott

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Posted by Luke Garrott

Luke Garrott, PhD, has published in The Salt Lake Tribune and the Deseret News, and written features for the Salt Lake City Weekly City Guide and The West View. A former two-term councilman in Salt Lake City's District 4, he lives in Downtown Salt Lake City and grew up in the Chicago area.