By Robert Demeter
In every city, rent growth is fueled by the same things: employment opportunities, population surge and housing demand. Often excessive rent growth can lead to abrupt halts or gradual rent decreases, most of the time due to too much construction or people just moving due to the high cost of living. This list includes the top 10 U.S. cities with the highest rent growth (by percentage) over the course of five years and highlights their struggle and success. Data was provided by Yardi Matrix.
10. Fort Worth, Texas
The Lone Star State city of Fort Worth saw significant growth over the course of five years, with an average increase in rents of 4.9 percent. The economy has been booming even before 2012, as a result of the area’s business-friendly climate and no state income tax, which attract both domestic and foreign capital. Fort Worth reached its peak in rent growth at 7.7 percent in January 2016. Since then—following the national trend—rents started decelerating. From January 2012 to August 2017, average rental rates increased by $256 to $1,033.
9. San Fernando Valley, Calif.
The urbanized valley near Los Angeles started gaining attention by the end of 2013, when L.A.’s rising cost of living has gotten to a point that was severely affecting even the wealthier citizen’s pockets. As demand for San Fernando Valley housing grew, developers seized the opportunity. By 2017, the region became a dense residential area, packed with business centers and industrial developments. Five years ago, the valley was seeing a moderate 2.5 percent average rent growth. In February 2016, growth peaked at 8.9 percent. The five-year average increase is 5 percent. Rents from January 2012 to August 2017 increased from $1,363 to $1,829.
The metro’s broad-based job growth, population influx and the booming film industry propelled housing demand in Atlanta over the past years. The average rent growth went from a 2.6 percent average in 2012 up to a peak of 7.6 percent by mid 2015. Atlanta developed a healthy 18-hour lifestyle and its favorable business climate continues to entice companies to relocate, which keeps the city’s growth streak steady. Multifamily development is elevated as more than 8,000 units came online in the past two years and the construction pipeline is far from empty. The metro maintains a relatively affordable living environment, with rents in August resting at $1,181—$295 more since January 2012. The average five-year increase is 5.1 percent increase.
7. Sacramento, Calif.
Towards the second half of 2013, something changed in Sacramento. The economy started booming and so did rents. In 2016, the metro was outperforming every major city in California—and still is—and has a top spot nationally in terms of rent increase as well. A lot of the city’s expansion had to do with the Bay Area and San Francisco’s extremely high cost of living. In 2017, Sacramento is enjoying a diverse economic profile, including an emerging tech and education scene, which attract both developers and investors, keeping the multifamily market healthy. The city saw an average 5.9 percent increase in rents in the past five years. As of August, rents rest at $1,364.
Rents aren’t the only thing increasing exponentially in The Emerald City. Seattle is the nation’s fastest growing metro area in terms of population for the second time this decade. The city also leads home-price increases, making it one of the hottest markets in 2017. It’s clear that Amazon’s footprint is one of the main reasons the market is booming, but education and tourism are also having a significant impact on the economy. Unlike Sacramento, the city didn’t boom overnight, but maintained its gradual expansion over the course of the years. Rents as of August 2017 rest at $1,482. The five-year average is a 6 percent increase.
Right up until the end of 2015, rents in Denver were surging with no signs of stopping. However, the large amount of supply did not get absorbed at a very high pace, so rent growth slowly started dropping. Rents peaked in June 2015 at 10.5 percent, and as of August 2017, rent growth is at 2.7 percent. Prior to 2014, Denver was performing well economically and had a healthy multifamily market, but soon after the legalization of marijuana in Colorado the metro saw an exponential growth period. Developers took notice of the increasing housing and rental demand, and construction never quite stopped since then. The tourism industry also blew up, along with warehousing. The average five-year rent growth is 6.2 percent. Rents from January 2012 to August 2017 increased by to $1,456, a $216 change.
4. Portland, Ore.
Much like Denver, Portland went through a phase of spontaneous rent growth, which started in late 2013 and ended at the start of 2016. After peaking at 12.9 percent, rents decelerated to a current 1.7 percent as of August 2017. Overall, the average growth in the five-year period is 6.5 percent. The deceleration is mostly due to overbuilding and supply not being absorbed as it came online. Completions have cooled off in 2017 and rents should bounce back to a 2.5 percent increase by year-end, given the fact that the metro is doing well economically and its population is rising. Rents as of August 2017 are $2,783.
3. San Jose, Calif. (Silicon Valley)
Silicon Valley is the nation’s largest tech hub, a top-performing venture capital market and one of the most prominent locations for startups. The metro continues to thrive as an attractive destination for businesses and young, educated workers. However, rents have skyrocketed in recent years to a point where even higher-paid workers struggle with housing. San Jose was booming back in 2012, rents were increasing year-by-year and in 2016 the growth rate finally caught up. The metro went through a period of negative increases until the beginning of 2017, and rent growth bounced back to a 2.6 percent increase by August 2017. The market is still healthy in terms of employment and population growth, but rent growth is moderate. The average growth from 2012 is 6.7 percent.
2. San Francisco
On the same note as San Jose, San Francisco experienced an almost identical rental history in the previous five years, with rent growth peaking in 2015 at 11.3 percent and decelerating since then. The only exception was March 2017 at -0.2 percent. Moderate rent growth continued throughout the year, reaching 1.6 percent in August. Rents reached $2,551, a $782 change since January 2012. The average growth rate is 6.9 percent. Nonetheless, San Francisco’s economy continues to attract investment and development and is considered a prime market. The employment sector is strong as well, the metro adding more than 69,000 jobs year-over-year through March.
1. Oakland, Calif. (Bay Area – East Bay)
Oakland and the entire East Bay region saw significant growth over the course of five years. The area has transformed into a higher-skilled labor market and is more accessible due to lower costs compared to San Francisco and San Jose. This is one of the main reasons contributing to the area’s recent economic success. As of August 2017, rents remain steady at $2,209, $759 more than in January 2012. Oakland got to a point in 2015 where it was leading rent growth by far as compared to every other major city in the U.S. Rents peaked three times at 13.5 percent over the course of just six months in 2015: April, August and September. The metro had a double-digit growth spanning a total of 21 months, from July 2014 to March 2016. Following the excessive growth period, rents moderated and as of August 2017, growth is at 2 percent, in line with other California markets. The average rent growth for the five-year period is 7.9 percent.