NEW YORK, NY--(Marketwired - December 22, 2017) - RentHop, the smarter apartment search marketplace, announced today the results of its new data study which provides an in-depth overview on the impact that the housing supply has had on rent growth in major U.S. cities. RentHop evaluated building permits, population, and rent growth between 2010 and 2016 for the top 30 counties in the country. In addition, RentHop took a deeper look at Los Angeles, CA, which has some of the cleanest building permit data.

To view the data study in its entirety along with tables, graphs and the interactive map visit, https://www.renthop.com/studies/national/heres-why-rents-are-so-high

Key findings of the data study from RentHop reveal that:

• The cities with the fastest growing population relative to building permits (between 2010 and 2016) are Sacramento, CA, San Antonio, TX, Riverside, CA and Fairfax (Washington Metro), WA. California is particularly under-built, with Sacramento, Riverside, San Jose, and San Francisco all in the upper 50th percentile supply tightness (in the top 30 counties).
• Each additional person per permit results in roughly a 1.2 percent increase in median county rent over a six-year period (though the relationship is far from perfect (and will be impacted by other economic factors).
• The lack of new construction is probably one of the many reasons for rental affordability crises in major cities such as New York, Boston, and Miami, not to mention San Francisco.
• In a deeper dive into Los Angeles, CA, RentHop found that most of the residential inventory built since 2013 was in the downtown Los Angeles area. The median cost for each multi-family unit was on the higher end, being in the $150 to $200 thousand range.
• Even locally (in LA), there is a slight relationship between units built (scaled by level of population) and rental price growth. Zip codes where the lowest number of units was built (lowest 20th percentile) experienced rent growths of roughly 4 percent higher than zip codes with the highest number of units built (top 20th percentile) from 2013 to 2016.

To determine if supply is meeting demand, RentHop looked at census population growth (Census and American Community Survey) and HUD building permit data between 2010 and 2016. RentHop defined the level of "housing tightness" in a county as the ratio of population growth to building permits (pop/permit). If population in a county is growing significantly faster than the supply of new housing, we expect the mismatch to put upward pressure on rents. To better understand housing tightness, RentHop first looked at population per permit across the largest 30 counties (and their corresponding cities) in the US and ranked them.

Between 2010 and 2016, the counties (and their respective cities) with the highest pop/permit ratios are Sacramento, San Antonio, Riverside, and Fairfax (Washington Metro). Sacramento is especially underbuilt, with over 7.4 people per building permit. Construction in San Antonio, Riverside and Washington has also not kept pace relative to population, with pop/permit ratios of 6.5, 6.0, and 5.2 respectively. Cities in California seem particularly tight in general. While California (the most populous state) has six counties in the largest 30 national counties, all of them are in the top 50th percentile in pop/permit.

On the other end of the spectrum, RentHop found that many counties have somewhat kept pace with their rapid population growth. Even though Houston, Seattle, and Austin logged double-digit population growths since 2010, they have kept their pop/permit ratios below 3 (though still higher than the national average of roughly 2.6 people per household). Among the top 30 counties, Wayne County (Detroit) is the only county experiencing a negative population growth from 2010 to 2016.

RentHop found that on average, each additional pop/permit resulted in roughly a 1.2 percent increase (off of a 15.8 percent baseline growth) over the 6-year period. While 1.2 percent might not seem like a lot, it can make a huge difference in especially tight areas. Sacramento, CA (with a pop/permit ratio of 7.4) had nearly 20 percent rent-growth versus Wayne County (Detroit), MI, which experienced negative rent growth.

Los Angeles Building Permits

Beyond Census/HUD level data, many cities now release highly granular building permit data. In particular, the City of Los Angeles has provided building permit data since 2013. The data includes not only permits for new buildings, but also data for upgrades and alterations, such as electrical, plumbing, etc. In addition to details about units, zip codes, and location, the city has also provided in-depth project value data.

RentHop first looked at where construction has been concentrated, as well as the general value of the project over time. The 2017 YTD data (especially) gives a pretty decent indication on where new housing supply will likely pop up in 2018 and later (since it takes roughly one year between permit and occupancy).

Click on the link to view the interactive map https://www.renthop.com/studies/national/heres-why-rents-are-so-high

RentHop also detected that a majority of the new residential units have (and will) be concentrated in the downtown L.A. area (even adjusting for population). The downtown area has experienced nearly 50-100 units built per 1000 population level every year for the last three years. This is somewhat expected, though, because Downtown Los Angeles area is in the top 20th percentile of most expensive neighborhoods in the metro area (not including beachfront properties and Beverly Hills). The data study also uncovered that much of the new residential inventory permissioned and constructed tended to be in the luxury range. The construction value of the projects (for multifamily buildings with 5+ units) is in the $150 – $200 thousand/unit range. While this building of new luxury inventory might not be affordable to most people in the area, it does put level of downwards pressure on nearby older buildings.

Next, RentHop looked at how much this new construction has potentially impacted rents. Unlike the county-level view, it is much more difficult to connect households, permits, and rental growth on a zip-code level. While residents might be constrained by their county/city (due to their jobs), they are not as constrained by zip code. If one neighborhood becomes way too expensive, they can simply move to an adjacent neighborhood (or even farther away and add commute time). Consequently, we could no longer rely on the change in a zip code's population. Instead, RentHop analyzed the units built/level of population in that zip code and compare that to rent changes. RentHop's data scientists bucketed the zip codes into percentiles (for units/recent population level) and looked at the average rent change based on how much inventory has been built.

The data study revealed that between 2013 and 2016, zip codes in the lowest 20th percentile of permits and construction experienced roughly an average of 4 percent higher than rent growth zip codes in the top 20th percentile. The average rent growth also increased between the 60 – 80th percentile bucket to the top 20th percentile bucket (by around 1 to 2 percent). However, this effect is likely because the top 20th percentile neighborhood (by construction) also happens to be the hottest neighborhoods where building projects make the most sense.

About RentHop
Founded in 2009 by Lawrence Zhou and Lee Lin, RentHop simplifies real estate decisions using technology and data analysis. It offers the most sophisticated apartment quality ranking algorithms, helping apartment hunters quickly sift through large pools of inventory to find the most appropriate listings. RentHop has also created the innovative "Appointment On-Demand" system, which allows renters to locate brokers and property managers available to show apartments in real time and to schedule viewings quickly and easily using RentHop's integrated messaging tools. RentHop is funded by Y Combinator. For more information, please visit www.renthop.com, follow RentHop on Twitter at @RentHop.