In this file photo, a sign indicates a house for rent in Zelienople, Pa.Keith Srakocic/The Associated Press
Home rental price growth turned tame in December – a sign that a burst of new apartment construction last year may be relieving cost pressures.
Real estate data firm Zillow said Friday that median rent rose a seasonally adjusted 3.3 per cent from a year ago. The median rent nationwide has held steady at $1,381 a month since August, after having previously surged dramatically above the pace of wage growth.
In several major markets, median rents barely budged over the past year. Rents edged up just 0.4 per cent in Chicago, 1.8 per cent in Philadelphia, and 1.6 in St. Louis. Even hot markets such as Denver, Portland and San Jose have retreated from annual gains that just two months ago were in the double digits.
New construction has helped temper price growth in many of these markets. The government reported Wednesday that the completion of multifamily housing – which includes apartments – surged 20.6 per cent last year to 308,300 buildings.
"Builders and landlords have been saying they need to give up a bunch more concessions now because more units are available," said Svenja Gudell chief economist at Zillow, adding that apartment buildings in Denver and Washington are even offering free parking spaces to entice potential renters.
Rents had been appreciating at double the pace of incomes for much of 2015. But they're now starting to pull closer together. Average hourly earnings have risen 2.5 per cent from a year ago to $25.24, the Labor Department said earlier this month.
In some cases, areas with less job growth have seen lower rental price increases. Annual job gains have averaged almost 2 per cent nationally. But that rate was just 1.1 per cent in Chicago, 1 per cent in St. Louis and 1.1 per cent in Philadelphia – all areas with lower rental price growth.
Zillow forecasts that rents will rise just 1.1 per cent in 2016 to $1,396 a month, a major deceleration from recent years.
Housing affordability has emerged as a growing economic concern. More than half of all renters spent at least 30 per cent of their income on rent in 2014, a level the federal government deems financially burdensome. The risk of rising rents is that they may limit down payment savings and delay home ownership.