"The low vacancy rate, improving economy, tightening labor market and gradually rising income growth is providing all of the fodder for continued rent growth, even in the face of rising construction," added Severino.
Rising construction, however, is largely on the high end. That is where vacancies are starting to show up. New York City, which commands the highest rent in the nation at an average monthly payment of $3,400, is seeing rising vacancies. San Francisco, No. 2 in rent, is showing vacancies are now flat.
In Washington, D.C., vacancies are falling, despite thousands of brand-new rental apartments coming onto the market. Rents, however, are seeing gains below the national average.
"DC has seen an extraordinary amount of new development with unprecedented units, but what is also unprecedented is the demand," said Toby Bozzuto, CEO of The Bozzuto Group, a real estate development and management firm operating in major markets, including DC, Boston, New York, Chicago and Atlanta. "The demand has been incredible. We've had very, very strong lease-ups. The only thing we haven't been able to do is move rents up because supply is so strong."
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Bozzuto admits he is concerned that so much of the new development is in luxury projects. Millennials and downsizing baby boomers alike demand the latest and greatest amenities, but there are a limited number of them who can afford all the bells and whistles. Job growth has been improving, but income growth has not.
"Every new building we built is so expensive — the land, construction, labor — that the rents we have to charge to make a feasible return are high. So to what degree are we creating a tranche of housing just for the elite, and at what point does housing become unaffordable? At what point does it become not sustainable to rent? I fear we may end up like that."
There are currently 9 million more renters than there were just a decade ago, the biggest jump in renters on record.