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Industry Executives Preview 2022: Part 1

Industry Executives Preview 2022: Part 1

The industry and its leaders will continue to contend with the numerous impacts of the pandemic in 2022, including rent growth and inflation, in part one of our executive preview.

The rental housing industry continues to endure the effects of the COVID-19 pandemic, and no one—whether living or working in apartments—has escaped its assorted impacts.

Rental housing professionals and their communities have seen a multitude of implications due to the changes happening in the industry and economy and adjusted accordingly—at one point on the fly, but now with strategic planning and processes. These implementations of processes and procedures are intended to address changes in rent prices, inflation, the labor market and technology, to name a few.

“There are so many challenges in front of us right now. Two current issues we face today arethe ever-evolving legislative issues as well as delays in the distribution of the ERAP [Emergency Rental Assistance Program] funding, which is meant to assist our residents impacted by COVID,” says Don Brunner, President & CEO of BRG Realty Group and 2022 NAA Chairman of the Board. “We as an association continue to offer ideas to assist in the distribution of the ERAP funding. One such idea would be to allow management companies to apply on behalf of their residents. On the legislative front, our Governmental Affairs team is working hard on our behalf of our members keeping us up to date on changes as they occur.”

Ronda Puryear, CAM, CPM, President, Residential Management with Management Services Corporation (MSC) and NAA 2022 Chair Elect, sees two major challenges going forward: The Great Resignation and affordable housing, both of which she provides solutions for in 2022. Inflation is also another item Puryear hopes to see ease during the next 12 months.

“Everything is more expensive, which impacts the renter, employee, employer and supplier. We have seen an increase in salaries to help meet those concerns,” she says. “From the owner perspective, when you start a rehab program – there is a supply chain problem which is interrupted with a lot of product sitting in the harbors—you cannot get the product: What product you can get is sometimes much more expensive or takes months longer for delivery than pre-pandemic. The impact of rising prices can also mean increased rents. However, simply due to supply and demand, we have seen rents increase across all markets.”

Rent prices

While rent growth slowed a bit toward the end of 2021, prices are still well ahead of what was typically seen during pre-pandemic years. The national rent index from Apartment List increased 0.1% in its December National Rent Report, which was the slowest month-over-month increase in 2021. Since January 2021, median rent growth increased nearly 18%. This is compared to 2.6% rent growth, which is what was seen, on average, in the January to November window during 2017-2019.

“What I expect is, at least during the first half of 2022, we're going to see this robust market continue through June, and I think we're going to see rents continuing to go up,” says Chris Burns, Senior Vice President with Lincoln Property Company and NAA 2022 Secretary. “We're going to see pretty good absorption and we're going to see a lot of transaction volume across the Southeastern market because there's still a lot of pent-up capital that needs to be invested, and deals are trading at record prices in all markets. Everybody is a seller today and, fortunately, for every seller, there's a buyer at a good price.”

The high growth numbers seen throughout most of 2021, as a rebound to the early pandemic declines, will continue to slow, while still being ahead of previous years’ data. “2021 was a unique year for a lot of reasons and seeing double-digit rent growth on your lease [can be surprising]. Demand will eventually tail off to the point where you can't do that, and we're starting to see that a little bit,” says Warren Rose, CEO of Edward Rose & Sons.

The talk of higher rent prices and the growth that has been seen during the pandemic “feeds into the affordable housing discussion that we are the problem,” Puryear says. “We need to continue to work with legislators, with localities, with national housing institutions to let them know we are here as a partner, to be part of the solution rather than being seen as the problem.”

The need for affordable housing is great, and the industry is being unfairly targeted as the reason behind the lack of affordable housing, Puryear says. She wants to educate Congress and work with local and national housing coalitions to help solve the problem.

“NAA is working hard to provide dependable housing to all who qualify,” says Brunner. “As affordable housing continues to be part of legislators’ agendas at the local, state and national level, it is key that we as an association are present at the table at every level. Too many times legislators are working on issues affecting our industry without allowing us to be part of the solution.”

Says Burns, "The other thing on the rent growth is with the inflation and prices of everything going up, at some point, the customer just can't keep writing that bigger and bigger check, and that's going to stymie the rent growth in some markets at some point."

Inflation

In October 2021, inflation in the U.S. rose 6.2% during the previous 12 months, a 30-year high. According to a December 2021 Gallup poll, 45% of American households report inflation has caused them hardship—35% moderate hardship and 10% severe hardship.

The impact of inflation on rent prices is nothing but astounding. It has hindered AMLI Residential employees from living at the communities at which they work. “In an effort to continue to attract and retain great service associates, we began offering additional housing allowances for all communities under 400 units,” says Traci Hall, President – West Region with AMLI Residential. “We had typically only offered one per property for service associates, and now we are offering two. No one can argue it is valuable to have our team live onsite.”

Renters will see inflation in their rents like consumers are seeing at the gas station or in the grocery store. “The fact is, it's costing us more today to turn units,” Burns says. “It's costing us more for utilities, it's costing us more for insurance, taxes are going up, so all those things are going up on the expense side, which forces our hands to cover those increases. Unfortunately, that renter and consumer is paying more at the leasing office, just like they're paying more at the pump. This inflationary pressure of course works against addressing the critical need for more affordable housing throughout all markets.

“The only way to keep from losing value with increased costs is to keep pushing the revenues up to cover those, and that's where I think later in 2022 gets to be a little more of a crunch because if the cost of goods keep rising and services keeps going up, but the renter gets to that point where their income is not going up enough to pay that, then that's going to put some headwinds out for us to be able to keep pushing the rents to keep up with the inflationary costs,” Burns says. “That's where some of the transaction volume and things like that will start to slow down if that negative impact starts to happen on pricing.”

Michael Miller is NAA Managing Editor.

Read part 2
Read part 3