Year-over-year inflation ticked up to nearly 10% in cities like Atlanta and Phoenix.
Continuously strengthening in-migration patterns across the Sun Belt are raising affordability concerns in the market, which has seen explosive population and rent growth since the onset of the COVID-19 pandemic.
Average rents ticked up 16.8% across all property sizes in the region year-over-year in January, according to a Chandan Economics analysis of properties managed by independent landlords and using data from RentRedi. Meanwhile, rents have increased just 5.1% on average in other regions of the US.
And within that data, single-family rentals continue to dominate. Average rent charges for single-family rentals clocked in at $1,400 in January 2022, up from $1,200 the year prior
“The Sun Belt was already benefiting from a strong labor market, low tax rates, and lower overall cost of living relative to other parts of the country before the pandemic. However, the region’s popularity has only increased during the past two years as workers became more mobile and able to take advantage of the lower cost of living in cheaper metros,” Chandan’s research team notes in an analysis of the RentRedi data. “Increases in home prices amid strong household balance sheets and constrained home-for-sale inventories have converged to create an influx of rental housing demand in the Sun Belt.”
Those rental increases are leading to higher overall cost of living within the Sun Belt region, as evidenced in part by a reduction in on-time payments last year and into 2022. On-time payments in Sun Belt cities have underperformed other regions of the US in eight of the last 13 months, and Chandan’s first estimate of January 2022 on-time rates showed that 79% of units within the region paid on-time as opposed to 81% elsewhere.
The firm expects rents will continue to climb this year, further compounding affordability issues. However, some experts maintain that rising wages have partially offset rental increases in these cities.
“We look closely at the rent-to-income ratio. The rent-to-income ratio is up in the Sunbelt markets, but it is only up modestly. So, rents aren’t all of the sudden unaffordable, and that is because wages are helping to offset some of that increase,” Jeremy Katz, co-head of CP Capital, told GlobeSt.com in an earlier interview, adding that wage growth in the region has been at about 5% or 6% in the last year.
But that’s on top of rising inflationary pressures: according to the Bureau of Labor Statistics, year-over-year inflation ticked up to nearly 10% in cities like Atlanta and Phoenix. According to the National Association of Realtors, the average consumer is spending nearly $500 more a week for monthly items other than housing, but wages haven’t kept pace, rising by just $212 per month.