In June, annual rent growth fell 2 percent. Now, new data from Zillow shows rent prices in urban areas have slowed faster than those in suburban areas, indicating that renters — and, perhaps soon, homeowners — could be fleeing urban centers.
Between February and June rent growth slowed as furloughs and layoffs tied to the coronavirus pandemic struck renters, causing some to move in with their families. During the same period, annual rent growth slowed two percentage points in urban areas while slowing by just 1.4 percentage points in suburban areas — a reversal of a trend in urban rent growth seen just before the pandemic went into full swing.
“Contributing to this are urban renters who have lost their jobs, are missing rent payments or are moving home in greater numbers than their suburban counterparts, and suburban rentals may now be more appealing for renters who no longer need to commute or are temporarily unable to enjoy some of the amenities of urban living,” Zillow’s report reads.
Because of relatively short lease lengths, trends in the rental market often move more quickly than those in the homebuying market. As of yet, Zillow’s report notes, homebuyers have not shown a clear preference for the suburbs as indicated by Zillow’s search traffic data. However, if changes in rental prices are an indication for a more widespread transition to the suburbs, similar trends in the for-sale market could emerge in the near future.
“It’s important to separate how much of the trend is coming from shifting tastes as opposed to the economic reality that renters face,” said Zillow’s report. “It may be tempting to conclude that urban renters who have been cooped up without outdoor space and unable to visit their favorite local bar are ready to commit to suburban life, and that is likely true for many. But that narrative ignores the fact that urban areas have been affected by job loss more so than suburban and rural areas, particularly renters who are disproportionately employed in the industries most affected.”
Courtesy of Zillow
This contrast between urban and suburban rent growth was recorded in over half of large U.S. metros analyzed by Zillow. Dallas-Fort Worth, Sacramento, San Francisco and the greater New York metro area showed the starkest differences between rent growth in urban and suburban areas. In Dallas-Fort Worth, for instance, rent growth slowed by 3.7 percentage points in urban areas since February, while rent growth slowed by just 0.5 percent in suburban areas during the same period. In New York, those numbers slowed by 3.8 percent and 1.3 percent, respectively.
Still, there’s been strong urban rent growth in some metro areas, especially Kansas City, Baltimore, Detroit, Riverside and St. Louis. Although both urban and suburban rent have shown growth in Kansas City, urban rents are growing at a greater rate.
As of June, year-over-year rent growth in urban areas accelerated by 3.7 percentage points, while year-over-year rent growth in suburban areas accelerated by 2.5 percentage points.
