As with all pricing, rent is a function of the interaction of supply and demand. In many markets, construction has not kept pace with job growth, and rents continue to climb. Compounding that is an increase in renters in general as mortgage lending standards restrict many from becoming homeowners.
This week I gave several presentations in Minneapolis-St Paul, a market where job growth is far outpacing construction of new rental units. In the latest 12-months, while the Twin Cities has had 12,629 residential building permits issued, job growth was 42,500. That works out to 3.36 net new jobs per new dwelling. In a normal market, each new dwelling requires from 1.25 to 1.5 net new jobs. From an economic perspective, construction could double in the Twin Cities and still not result in an over-built market, assuming that job growth continues at that pace.
So where are rents expected to increase the most? Reis, a nationwide source of market information, analytics and data, compiled a list of the top-10 growth markets. They include:
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In the past, markets have been overbuilt and rents have retracted. That may well be the situation in Washington, D.C. today.
In general, renters will see rising rents in 2014.