Tampa Bay’s real estate market is one of the hottest in the nation, with rents increasing a record 24% in 2021. That is a bold statement, but two separate statistics underscore the truth of this claim.
First, Tampa is projected to lead the nation in home purchase demand in 2022, according to Zillow research.
And, equally significant, the Tampa Bay rental market led the nation in average rent increases of 24% during the past year, according to CoStar Group, a commercial real estate data firm. Their survey included rentals throughout Pasco, Hernando, Pinellas, and Hillsborough Counties.
Why is Tampa Bay Rents Increasing So Rapidly?
Home purchase and rental demand tend to rise in tandem, mainly when an influx of people and jobs coming to Tampa creates a greater need for housing.
Tampa Bay is a very desirable place to live and work. The weather, access to water for recreation, Florida attractions, infrastructure, and a booming local economy are pulling young and old to the area.
Additionally, Tampa Bay’s comparatively low cost of living and tax structure has become an essential draw for retirees and others preparing to move.
However, new construction and existing property sales are not meeting the demand.
While 2021 saw consumer retail prices (CPI) rise across the economy at a nearly 30-year high rate of about 7%, Tampa Bay’s 24% rent increase far outstrips price rises elsewhere. The dynamics for this increase involve more factors than simple price inflation.
To compare, according to the same Tampa Bay Times report, the most significant average rental rate increase was only 6.2% in 2015.
Tampa Bay’s Demand is Outpacing Supply
The nationwide demand for available housing is already outpacing the available supply. In the home buying market, particularly in Tampa, relatively fewer homeowners have been interested in listing their homes for sale, so a dramatic influx of people moving to the area is causing a historically steep increase in home pricing. In many instances, prospective buyers find themselves in bidding wars involving several other interested participants, inevitably driving prices upward.
What happens in the rental market when the supply of homes to purchase cannot keep pace with the demand? Many would-be homebuyers who cannot afford the current market begin searching desperately for a place to live and must turn to the rental market. As a result, rents, driven by higher demand, rise as well.
Furthermore, those already occupying a rental plan to stay longer even in the face of rising rents, since the availability of an alternative home buying opportunity or another rental is becoming even more limited.
According to a CoStar market analyst, the current vacancy rates for rentals throughout the Tampa Bay area are at an all-time low of 4.4%. As a result, the average area renter realized an increase of $315 per month on their rent, with West Tampa leading with a 29% average rent increase over the prior year. Many renters are now paying up to 50% of their income to remain in their rental. Furthermore, some reports mention a two-year waiting list for rental availability.
Will the Housing Supply Increase with New Construction?
While the housing shortage appears to be most extreme in the Tampa Bay area, some shortfall is prevalent just about everywhere, whether for rent or purchase.
According to an MSN report, builders face labor and material bottlenecks that are causing a widening of the supply-demand gap. In addition, lumber and plywood prices have soared, while the pandemic has driven significant supply chain problems for steel, aluminum, electrical components, and appliances.
Skilled and experienced labor is also in short supply. Many workers left the industry during the Great Recession of 2007-2009 that resulted from the massive housing bubble and sub-prime lending problems. Many of these individuals moved on to other jobs without returning, creating a skilled labor shortage.
The MSN report further notes that October 2021 was the third time in five months that new home construction had declined, even despite the higher demand. Permits for new construction increased during 2021 over the prior year, but the building of many of these homes still had not begun. The number of homes nationwide that were awarded permits, but not started as of October, stood at 259,000 units, a record since 1978.
High demand for housing is suitable for homebuilders, lenders, rental property owners, raw material suppliers, and real estate investors.
The supply of homes and rental units will eventually catch up to the demand once the supply chain components find ways to return to normal. A balance will not occur overnight, but the free market always finds a way to correct itself.
Graystone Investment Group
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