After rising exponentially at the beginning of 2022, apartment prices came back to earth by the end of the year, according to a report from real estate and property management software company RealPage.
But for some private equity investment groups invested in apartments, rents are still climbing — and lucrative.
Demand for new leases has also dried up thanks to low consumer confidence and increasing inflation, and net demand for apartments ended the year in negative territory, according to RealPage. In other words, after a historic wave of household formation and relocations in 2021, most Americans chose to stay put in 2022, according to the RealPage analysis.
The company highlighted that renter turnover is low with no sizeable jump in unpaid rent. Nearly 96% of market-rate apartment renters paid their rent on time and aren’t searching for lower rents, which increased 6.1% nationally in 2022 as of November.
“We’ve never before seen a period like this — weak demand for all types of housing despite robust job growth and sizable wage gains,” RealPage Chief Economist Jay Parsons said. “It wasn’t just apartment demand that shot up in 2021 and plunged in 2022. The same pattern played out to varying degrees in other rentals and in for-sale homes.”
Parsons also noted that “while some pundits have suggested demand is slowing due to affordability challenges, there’s not yet any evidence that’s true within the professionally managed, market-rate apartment market.” He added that turnover, while normalizing, is still low.
The low turnover and demand have benefited more prominent apartment investors like Starwood Property Trust Inc. STWD, according to a report in The Washington Post. The company has put together a portfolio of more than 115,000 apartments in the past seven years, giving it one of the country's largest collections of rental properties. While many analysts predict rents nationally could slide precipitously in 2023, there is no such incentive to follow that trend at Starwood-owned properties.
The Washington Post reviewed Starwood leases and found that some of its complexes reported annual rent increases of 30% percent or more. Tenants at Starwood’s Estates at Wellington Green property in Palm Beach County, Florida, saw their rents increase by as much as 52% in 2022. At the company’s Griffin Apartments in Scottsdale, Arizona, rents jumped by 35%. The most significant hike occurred at Starwood’s Cove at Boynton Beach in Florida, where rents on some units jumped by as much as 93% in 2022.
Even at its low-income properties built with U.S. government subsidies, rents jumped by 10% — especially after the U.S. Department of Housing and Urban Development dropped requirements for rent limits.
Starwood claims it’s just good business in a competitive environment. “Starwood is one of the world’s premier real estate investors and owners of apartment properties,” the company said in a statement to The Washington Post. “Our reputation is extremely important to us both as an investor and a landlord, and it is something we take very seriously. We would not have been able to grow and maintain our portfolio at this size if we acted differently than any other landlord in this space.”
The newspaper shared the experiences of some Starwood renters, including 38-year-old Veronica Stevens, a cannabis dispensary employee who shares a two-bedroom apartment at the Cove with her 17-year-old daughter. Stevens said her rent went from less than $1,500 to $2,070 per month, and she is now looking for a second job.
Robert Passaretti, a 35-year-old waiter, told The Washington Post that his rent at Starwood’s Reserve at Ashley Lake Apartments in Boynton Beach went from $1,350 monthly to $2,050. He’s now looking at out-of-state options.
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