Rents across the metro area raced into the new year at one of the fastest paces in the country, offering little hope for those seeking relief.
Metro Denver rents, including homes and apartments, rose more than triple the U.S. annual average in January — 10.2 percent versus 3.3 percent, according to the Zillow Rent Index.
Only the California cities of San Francisco, up 14.9 percent, and San Jose, up 13.4 percent, showed larger gains. But San Francisco doesn’t have any land to build on, and the high wages pouring out of the Silicon Valley are pushing up San Jose rents.
Another report from Apartment List in San Francisco also found Denver apartment rents in January were increasing at triple the U.S. average.
Rents on two-bedroom apartments across metro Denver, not including Boulder, are up 9.5 percent on an annual basis versus a 2.9 percent gain for the U.S.
Apartment List ranked Aurora first and Denver third for the size of their two-bedroom rent increases among the large U.S. cities it tracks.
“The rent growth is the fastest I have ever seen it,” said Cary Bruteig, who has tracked the Denver rental market for 23 years with Apartment Appraisers & Consultants.
Bruteig’s more comprehensive quarterly survey of more than200,000 apartments in a seven-county metro area found rents rising at an unprecedented annual pace of 12 percent in the fourth quarter.
One puzzle is why Denver rents are rising so much despite the addition of 9,000 new apartments last year, one of the biggest construction surges seen since the early 1970s.
New supply normally pushes down rents, but the inventory hitting the market tends to be on the higher-rent side, so it is having the opposite effect.
But the core problem is that the region is failing to produce enough homes to accommodate all the people moving here, and that is showing up in skyrocketing costs.
“The supply of apartments available to these new residents has not been able to keep up with the demand, leading to intense pressure on housing prices,” said Max Rosett, a data scientist with Apartment List.
Low vacancies
Apartment vacancies are hovering around 4 percent, an abnormally low level usually associated with land-constrained markets such as Manhattan and San Francisco, Rosett said.
The tight supply is also hitting the housing market. A separate home price index from Zillow showed a 14.7 percent gain year over year in January, the fastest of 35 metro areas tracked. And the supply of homes available for sale is at a record low.
Metro Denver residents are getting hit with a one-two punch of rising rents and rising home prices in a way no other area is, and little immediate relief is in sight.
Developers have another 40,000 apartments under construction or planned, which should result in an additional 10,000 apartments coming online each year over the next four years, Bruteig said.
That represents a major inventory boost in a market with 300,000 apartments and could taper future rent increases, he predicts. Relief also could come as people choose other more affordable markets to live in.
That, however, offers little comfort to renters struggling to cover the added costs that comes with each rent increase.
“Since 2000, rents have grown roughly twice as fast as wages (nationally), and you don’t have to be an economist to understand why that is hugely problematic,” noted Stan Humphries, chief economist with Zillow.
Barrier to buying
Rising rents combined with flat incomes are making it much more difficult for renters, who represent a third of U.S. households, to save the money needed for down payments to buy a home.
“The rental market used to be and should remain a steppingstone to homeownership. But given how widespread rental affordability problems have become, the rental market could be acting more like a barrier to buying,” Humphries said.
Apartment List detailed rent increases by sub-market. Centennial had the biggest rent increase of any suburb at 14.1 percent, which pushed the average two-bedroom rents there to $1,310 a month.
LoDo is the most expensive neighborhood, with rents on a two-bedroom of $2,920 a month, double the city of Denver average.
Broomfield remained the most expensive suburban apartment market, with an average rent on a two-bedroom of $1,480. But rental increases there were moderating — up only 2.2 percent on the year.
Aurora still had the cheapest apartments in the metro area at $850 a month, but rents rose 12.8 percent year over year, the fastest increase among the more-populated cities in Apartment List’s survey.
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or twitter.com/aldosvaldi
