Renters in the Philly area have fewer options than in most of the country

Renters are in a tough spot, but signs point to a bit of future relief.

Demand is high and supply is low, but construction of multifamily homes has increased from last year. Rents are still reaching record highs, but rent growth continues to slow.

“Whether in a downtown area or suburb, staying put or making a change, renters are stuck between a rock and a hard place when it comes to affordability,” Danielle Hale, Realtor.com’s chief economist, said in a statement. Higher demand in the suburbs because of remote work during the pandemic has narrowed the gap between urban and suburban rents. But, Hale said, landlords are adjusting to renters’ tightening budgets.

Cost and supply are working against renters, some of whom have put home buying plans on hold as the cost of purchasing also has shot up.

This spring, the Philadelphia metropolitan area had one of the lowest rental vacancy rates in the country, according to Census Bureau data from the second quarter of the year. The vacancy rate in the area, which includes Camden and Wilmington, was 2.8%. That puts the region in the top 10 large metro areas with the lowest rental vacancy rates.

On average, more than 15 renters competed for each available apartment in market-rate properties of 50 or more units in Philadelphia during the first four months of 2022, according to a report by the online rental marketplace RentCafe. Apartments took an average of 43½ days to be occupied.

“Overall, rental demand remains solid,” Sean Kelly, chair of the National Association of Home Builders’ Multifamily Council, said in a statement. “Rising mortgage interest rates mean low vacancy in multifamily rental.”

» READ MORE: Renters face bidding wars in a fiercely competitive market

The Philadelphia metro needs to build 3,000 new apartments each year to keep up with demand, according to a July report commissioned by the National Apartment Association and the National Multifamily Housing Council. Pennsylvania will need about 5,000 new apartments a year, and New Jersey will need 3,000.

Roughly 3,600 units were built in Philadelphia over the last 12 months, according to ALN Apartment Data.

The country as a whole needs to build 266,000 new apartments each year, according to the national report.

“It is time to reverse course after decades of underbuilding and instead pursue responsible and sustainable policies that will not only meet this demand but address the missing middle and loss of affordable housing stock,” Bob Pinnegar, president and chief executive officer of the National Apartment Association, said in a statement.

» READ MORE: Hundreds of new apartments are coming to West Philly, a century after its last building boom

Nationwide, landlords are less interested in expanding their rental portfolios than they were at the beginning of the year, according to a survey of landlords and renters in July by Avail, an online platform for landlords and renters that is part of Realtor.com. But most are not looking to sell.

Although construction starts of single-family homes were down 18.5% from last year, multifamily starts grew more than 17%, according to the Census Bureau’s July new residential construction report.

Developers are building and planning thousands of apartments across Philadelphia. In one section of West Philadelphia alone, more than 800 multifamily housing units are expected in the next few years. A developer has proposed more than 1,200 additional apartments nearby.

Rent growth has slowed significantly this year. Across the country’s 50 largest metropolitan areas, the median monthly rent growth from June to July was the smallest in 2022, according to Realtor.com. But the U.S. median rent reached $1,879 last month — an all-time high.

In the Philadelphia metro region, the median rent in July was $1,835, up more than 8% from a year ago. The median rent for a two-bedroom home was $2,000, up about 9%.

Nationwide, renters paid on average $160 more a month to renew leases this year and $300 more a month when they signed a new lease, according to the Avail survey.

» READ MORE: Philly renters should probably expect new leases to include higher rent to account for new tax assessments

“Like renters, landlords are feeling financial pains from the inflationary economy,” Ryan Coon, vice president of rentals at Realtor.com and cofounder of Avail, said in a statement. “To help offset these higher costs while maintaining local ownership of rentals, our survey suggests that many landlords are making the difficult decision to raise rents.”

Nearly three in four landlords surveyed in July said they planned to raise rents within the next year, citing higher property management expenses. Among these rental property owners, 21% planned to raise rents by more than 10%. That’s down from 25% who planned to do so in April.