The upward trend in home rental prices is expected to continue in 2022.
Rental costs have continually increased over the past few years and John Bitely, president of Sable Homes, said there are no signs of it stabilizing or declining.
“I currently don’t see any end to the increase in the rental rates for West Michigan,” he said. “The main reason is that we as builders and developers cannot supply enough new homes at the price point that is the most needed.”
CoreLogic, a global property information, analytics and data solutions provider, released its national Single-Family Rent Index for September 2021 and it revealed a national rent increase of 10.2% year-over-year. That is up from a 2.6% year-over-year increase in September 2020.
There are several reasons why rent prices have been increasing and will continue to do so in the coming year, including lack of supply, zoning restrictions and inflation.
Bitely said there are not enough homes on the market, which forces individuals to continue to be renters instead of homeowners.
“There is not enough transition housing available for people to buy,” he said. “Many times, rental is a transition for people to get to homeownership, and when there are not enough homes for people to buy for the price range they can afford, they are force to rent, which in turn shortens the supply of rentals even tighter.”
Jason Wheeler, director of communications for Wheeler Development Group (WDG) and PURE Real Estate, said when the pandemic initially started in 2020, they saw a slowdown in new rentals and leases, but they also saw a much higher renewal rate.
“Many people decided to stay once their lease expired and renewed them,” he said. “As we got into the spring of 2021, we saw a huge amount of rental activity and our portfolio was 100% full. In our downtown apartments we saw our one-bedrooms with on-site parking as the most desirable and sought after. The townhome markets were very similar. What little inventory we had available in winter 2020 and 2021, it was absorbed and has remained full since 2021 spring. Both two- and three-bedroom homes are equally as popular.”
One of the areas in West Michigan that has seen an increase in renters is Caledonia. Wheeler said his company is seeing a lot of renters seeking townhomes as they pursue a new single-family home, either through building a new home, or buying a home in the area. He said the activity is supported by new institutional and corporate growth in that area, including Switch, Davenport University Lettinga Campus, Amazon and University of Michigan Health-West.
“As for the Caledonia market, PURE manages Portview Townhomes and Hanover Townhomes,” he said. “We have approximately 80 two- and three-bedroom townhomes in Caledonia between these two properties. They are completely full, and we are adding homes to Hanover Townhomes in response to this growth.”
There are several reasons why the supply of houses lags behind the increasing demand. Bitely said Sable builds approximately 100 homes per year, but the pandemic has driven the prices of those homes higher.
“Homes that we used to build for $250,000 now cost $275,000 because of cost increases, whether it is large spikes in lumber or the shortage of lots, or because of anti-development people in municipalities,” he said. “They are not encouraging land to be developed for new houses.”
While WDG has been able to build new townhomes in Caledonia, Bitely said there are many individuals in different municipalities who are against new development.
“I encourage people who are in the rental world to realize that if they don’t support new housing, they are going to pay more rent,” he said. “Sometimes you see in the headlines, ‘Big development shot down by the township,’ or ‘Voters turn out against the neighborhood’ — whether it is revitalization, whether it is a new development, whether it is a condominium project or a townhome project. Many times, the people who are complaining about it already own a house. The people who need a house or need rent to be affordable never go to those meetings and say, ‘Hey, we need this housing because we cannot afford to pay more and more and more.’”
Bitely said there are other restrictions and regulations that hinder residential construction efforts including zoning, water control issues such as storm water, additional costs for building roads and a shortage of water main pipes.
The increase in rental rates also will continue due to the predicted rise in interest rates next year, he said.
“It will make new houses even less affordable, and my gut feeling is that it will make rent go up even more because it will keep more people from buying a new home,” Bitely said.