2022 Boston Mid Year Apartment Rental Market Report
We are halfway through 2022 and the apartment rental market in Boston has never looked stronger. Apartment inventory levels are at historic lows while average rent prices continue to break through all-time highs with each passing week. Even more impressive, we’re just 14 months removed from when the Real-Time Availability Rate (RTAR) of Boston apartments surged to an unprecedented 13% due to COVID lockdowns, remote work, and distance based learning. To call it a market turn-around would be an understatement. Words can not properly encompass how fast we watched demand pour right back into the Greater Boston housing market.
Boston Apartment Availability Hovers at Historic Lows
Boston’s current RTAR is at a mind numbingly low 3.38% and trending downwards. That marks a -68.50% drop in apartment availability year-over-year and a -32.53% decrease from its pre-pandemic level in June 2019. What that means for renters in Boston is that they are seeing nearly a third less available apartment inventory in 2022 than they were prior to COVID.
Boston’s RTAR peaked at 4.97% in April of this year. That marks the first year on record that apartment availability did not break through the 5% level. For comparison, in April 2019 apartment availability hit its cyclical high point at 6.44%, which at the time was the lowest annual peak RTAR on record. At the current rate of absorption, RTAR will most likely break its previous all-time low of 1.73% set in October 2019. There are several potential significant negative economic forces at play which could halt this downward availability trend – and we will address those more towards the end of this article.
Apartment Occupancy in Boston Sits at 99.53%
Boston’s current real-time vacancy rate (RTVR) is 0.47%. That marks an -82.78% drop year-over-year in apartment vacancies and a -35.62% drop from its pre-pandemic level in June 2019. Yearly RTVR historically bottoms out in late August in Boston. With 8 weeks to go until the pivotal 9/1 leasing date, it’s highly likely that it will break through its previous all-time low of 0.42% set in late August 2019. The bottom line; unless the unit is in terrible condition and/or horribly overpriced – a vacant apartment should not be sitting on the market longer than one week.
With RTAR and RTVR at historically low levels, it’s apparent that demand for apartments in Boston has never been stronger, and the city’s rental supply is struggling to keep pace. That most likely points to one thing for renters in Boston: higher rent prices.
Record High Rent Prices in Boston
Boston’s current average rent price is $2,695. That marks a +6.87% increase in apartment rent year-over-year and a +1.85% increase from its previous all-time high before COVID. The average rent price has exceeded previous record highs for all sized apartment units with the exception of 1 bedroom apartments in Boston. The chart below illustrates that price growth began to accelerate in October of 2020 as inventory returned to its normal level following the pandemic.
2022 Boston Rental Market Second Half Forecast
Looking ahead to the second half of 2022, there is a lot of uncertainty looming in the Boston housing market. With apartment inventory sitting at historic lows, it would be easy to predict that rent prices will continue to rise throughout the remainder of this year. However, with inflation at a 40-year high and interest rates on the rise, it appears that a market correction may be on the horizon. There are two key trends to watch that could lead to a rental pricing downturn in the Boston apartment market.
1. Will Rising Energy Costs Cripple The Boston Rental Market?
Much like inflation, energy costs have a ripple effect across all industries, including the housing market. Construction and transport costs primarily revolve around the price of diesel fuel. When diesel prices rise, the cost of shipping building materials and working with heavy machinery often increases by the same margin. With the cost of diesel at ridiculously high levels due to bad energy policy; the consumer will most likely have to shoulder the burden of the renovation and construction price increases. The inconvenient truth of construction and renovations is that expensive energy prices increase the cost of maintenance for property managers, which eventually trickles down to the renter in the form of rent hikes. Just in the last two years, we’ve seen a +59.35% increase in the PPI Index for Multi-Family Residential Construction, nearly six times the margin that CPI has risen over the same time span. There is simply no way to hide from high energy prices. Our legislators should consider figuring out some innovative supply side relief on fuels so that construction prices are reduced thereby passing on those savings to homeowners and renters.
While higher energy prices add to the owner’s costs, it adversely impacts the renter’s purchasing power. Not only do they pay for more on gas, home energy, and food but they also see consumer prices soar in nearly every sector. Our entire national economy runs on traditional fuels, and there’s no escaping the economic burden of a poorly maligned energy policy. We are expecting individual consumer savings levels to go down, and credit card debt to go up, due to rampant inflation as a result of the restriction of supply of fossil fuels. It is certainly going to be interesting to see how the fall and winter housing patterns begin to develop while fuel prices stay high.
2. Will Inflation Lead To Demand Destruction?
One of the key trends to watch over the next few months is to what extent inflation will lead to demand destruction. As we mentioned, consumer purchasing power declines when inflation runs rampant, and this almost always leads to an economic downturn. Corporate layoffs ensue, unemployment rises, and eventually demand for housing will decline and prices will come back down. This could affect both median sale prices and rent prices in Boston. After speaking with numerous developers, many are pulling back plans to create new housing because they simply can’t get the math to work to facilitate delivery of new product. Countless developers have told us their cost of construction is 30 percent higher than it was one year ago. We have seen recessions before, and it looks like we’re heading down that path again in 2022-2023.
There are several economists who believe that we are already at the beginning of a recession. To what extent this will affect rent prices is uncertain. We have two main forces exerting pressure on rent prices. First, the apartment supply shortage and rising costs of property maintenance are both pushing rent prices higher at the present moment. However as consumer prices and energy costs rise, consumer demand will drop in the future which could bring rent prices back down. We could see a return to young professionals and recent graduates moving back home with their parents to save money on housing related costs. Generally speaking, the longer inflation runs its course and misguided energy policy keeps prices high, the worse the impacts of a recession. Eventually, a significant portion of the population will burn into their savings and be reliant on credit cards to cover costs. This will lead to higher consumer debt and lower credit scores, which makes it harder to qualify for leases and home financing. It would be prudent for our legislators to rethink our energy policy and focus on increasing supply. Unfortunately it appears that there are no quick fixes on the horizon.
For multiple complex reasons stated above, we expect rent prices to continue to rise albeit slightly until we hit the 9/1 leasing date. Once seasonal demand wanes, we expect the average rent price to flatten out and possibly begin to turn downwards towards the end of the year due to uncertainty in the economy and record low consumer confidence. We could end the year with a 6-7 percent increase in rents. While it is too early to clearly predict how our real estate market will look, inflation for an extended period of time is always problematic. By wintertime, we will be close to almost 18 months of high energy prices. We are also going to see rate hikes impact our real estate market at all levels. One thing that we are more certain of is that we do not feel confident that rents will rise in 2023. It is going to be interesting to see how the consumer holds up under inflation and rate hikes. We will continue to monitor and report on these rental market trends as they develop.