Rising housing costs and the widespread availability of remote work, which began during the pandemic, helped spur a 42 percent increase in of-state applicants for rental properties from 2020 to 2021, according to a new research report from TransUnion.
In the same period, rental applications in rural areas rose by 28 percent and in the suburbs by nearly 23 percent while urban applications increased by about 10 percent. Rural areas, which in many places are considered exurban communities, offer more space and affordability but may be close enough to urban cores to allow for occasional trips to the office.
“We all guessed it would be (a high number), but when there’s an actual statistic put around that hypothesis and that statistic is 42 percent and that’s almost half of the rental applications, it really puts context around what the population has done in terms of choices they’re making in their housing as a result of the pandemic, said Maitri Johnson, vice president of tenant and employment screening at TransUnion. “This is happening everywhere. People are moving to less expensive locations where they can get more home for their money and now with everybody being home more, they’re looking for more space.”
Texas had the largest increase in new residents between 2020 and 2021, with more than 310,000 new residents, while New York saw the highest decrease, losing more than 319,000 residents. Generally, cross-state migration patterns found more people were leaving California, the Rust Belt and Northeast and heading to the Sun Belt and Rocky Mountain regions.
The analysis found the pandemic provided numerous demand drivers that dramatically impacted the rental housing market during that period and continue to shape current and future multifamily trends including lack of supply to meet the growing demand, rising interest rates that are beginning to cool off the formerly hot housing market and a projected increase in immigration.
TransUnion, which is presenting its findings today at the National Apartment Association’s annual “Apartmentalize” conference in San Diego, gave Multi-Housing News an exclusive look at the report, “How Covid-19 and Remote Work is Reshaping U.S. Rental Demand.”
While Johnson expects those out-of-state applicants to remain in their new surroundings, this year they are seeing more people returning to offices in cities, even if it’s in a limited or hybrid capacity.
“It is starting to bring some of those folks who had left the city back into the cities,” she told MHN. “So, the cities are starting to see a bit of a revitalization. I’m not suggesting it’s going to snap back by any means but it is going to be a gentle return to some of those urban areas. New York, as we said, in our study, had the biggest out-migration. I think it will take some time for cities like that to recover. California is in a very similar situation.”
Other Demand Drivers
The report noted overall occupancy of U.S. rentals reached a record 98 percent in January. TransUnion stated some of that may have been driven in part by homeowners who capitalized on their home equity and sold when housing prices were at an all-time high and moved into rental housing in the interim. Rising interest rates are beginning to impact the housing market, causing first-time buyers to wait and continue to rent as well as those who sold properties at the height of the boom period.
“You have the traditional demand coupled with these former homeowners selling their homes now going into a rental property until the market cools enough where it makes buying a new home affordable again,” Johnson said. “Those former homeowners find themselves in what I call a transition period and that transition period is going to end up being a longer transition period than they were anticipating. In term of demand, it’s creating a whole new channel of renters that once upon a time wouldn’t have existed.”
TransUnion also highlights the impact immigration patterns are having on the rental market, noting that 83 percent of the immigrants who have lived in the U.S. five years or less are renters. Seventy percent of those who have lived in the U.S. between five and 10 years are renters, and more than half, 57 percent, of those who have lived in the U.S. from 10 to 20 years continue to be in the rental market, according to data from the U.S. Census Bureau and Joint Centers for Housing Studies of Harvard University.
In 2022, immigrants represent more than 14 percent of the total U.S. population. That number is expected to reach 17 percent by 2060, according to the U.S. Census Bureau. Johnson said those patterns also impact rental housing applications going forward. Another “wow moment” as she put it, is data that indicates nearly half of all U.S. immigrants lives in Texas, California and Florida, further stressing the rental markets in those states that have been seeing an influx of out-of-state migration due to the pandemic and other economic impacts.
The report also notes that, while it is difficult for first-time homebuyers to afford a single-family home, rents and subsequently delinquencies are rising. TransUnion stated rents have increased an average 14 percent between 2020 and 2021, while the median income of applicants increased 6 percent over the same time period. On-time rent payments dropped to 92 percent by the end of 2021 compared to on-time rent payments of 96 percent in January 2020.
For those seeking more space but can’t afford to buy a single-family home, built-to-rent communities can help bridge the gap. BTR developments are smaller than traditional multifamily communities, and developers can often get approvals sooner and get properties built faster, Johnson noted.