Rent prices increase as the cities ‘come back to life': National Apartment Association CEO

Robert Pinnegar, CEO and President of the National Apartment Association, joins Yahoo Finance to discuss the outlook on rental market amid rising rent prices.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, from buying to renting-- rents are starting to surge in many parts of the country as the economy reopens and many people rush back to the cities. Joining us now is Robert Pinnegar, president and CEO of the National Apartment Association. Robert, it was not that long ago that landlords were throwing the kitchen sink at prospective renters and throwing in lots of perks. Are those days gone, at least for now?

ROBERT PINNEGAR: I think they are for now. We have a number of factors that are playing into this. We have the reversal of the COVID migration that's occurring. We have baby boomers that are deciding to cash out their homes because the market is hot, so they're selling their homes and moving into rental property.

And then we have Generation Z. And think about this-- they weren't able to have meaningful home formation last year because of COVID. And so now we're seeing a larger-than-usual number of young college graduates that are moving out and renting homes. And so it's all coming together at this point in time.

ALEXIS CHRISTOFOROUS: We have a graphic up here now talking about some of the places where rental prices are the hottest. And it seems to be concentrated out West, mostly in California and Arizona. What are some of the trends you're seeing, and are bidding wars now what renters should be expecting?

ROBERT PINNEGAR: Well, it's a phenomenon that's occurring now, but I don't know if that's going to continue for the long term. Looking at those cities, those are cities that people moved post-COVID. As we're beginning to see the economy opening up again, we're going to see employers bringing people back into the office. I saw a report that said that while 2/3 of all the American workers want to work remote, only about 30% of the jobs are available for truly remote work. And so really, 70% of the workers are going to have to go back into the office.

So this means if you move to Sacramento because you live in San Francisco and you have that flexibility, you're going have to go back into the city. And so that means we're going to see a natural tide moving back into the urban areas, though it may take six months to a year before we fully see what the effect of that is.

ALEXIS CHRISTOFOROUS: What would your advice be to someone looking to enter the rental market, hearing all of this and getting kind of depressed about it? Are there some ways that they can help themselves set themselves up for success to get the best deal they can in a challenging environment?

ROBERT PINNEGAR: I think there is. You really have to evaluate what is important to you in the rental you're looking for, such as proximity to work. What are you looking for? If you'd like to have a two-bedroom but they're expensive, maybe it's time to consider a one-bedroom, so downsizing for some period of time. Have your information together when you go to apply for the rental unit. And if you find that you're having challenges, then look a little bit further away from where you wanted to be, and you may be able to find something that works for you.

This is a temporary cycle in the market, and this industry has periods of time where concessions are offered because there is high vacancy, and they have periods of times where things contract. Right now, we're in the summer months. And in the summer months, you traditionally have a large amount of people that are moving from one place to the other. So you tend to see rents increase. But as you get to the fall, the rents are going to decrease. So if you're in a situation that you can delay moving into the market, wait a couple of months, and you're probably going to see a better deal.

ALEXIS CHRISTOFOROUS: What does all of this tell you, though? Remember, months ago, we were talking about the death of cities, that the pandemic had people fleeing to the big cities and that they were not going to be coming back. If you look at these numbers, it sounds like they are coming back, and in a pretty big way.

ROBERT PINNEGAR: Cities are coming back at a faster rate than people anticipated. A lot of people were talking about the death of the urban property, but we're beginning to see that people want to go back into the city. And the same factors are still there. That urban environment where you can walk to work, you can walk to shops, you can walk to entertainment and restaurants, that's still there in the cities.

And as the cities come back to life, as the shops reopen, as the stores reopen, that environment is still going to be there. And there has been a sustained demand for that environment for the last 15 years as we've seen this trend grow.

ALEXIS CHRISTOFOROUS: What about just base rent prices? How much have they been going up? I saw one report said 33% increases. That is huge. And for a lot of people, they're just not going to be able to afford that. They'll be priced out of the market.

ROBERT PINNEGAR: I've been looking at the increases. If you look across the market, you have some markets that, especially during COVID, we-- the people that were moving into that were smaller markets that had very low rents, as you began to see more people move in, they were really pushing the costs up. I was told by people-- members that are in the Austin area that the amount of California license plates that they're seeing in Austin, they've never seen before. And this is a situation where you have high-income individuals who are in a position where they can work remotely that are coming in and distorting the market.

I don't know that that is a sustainable market. You're not going to see those kind of rent increases go on for an extended period of time. But it really is just a sign of the changes that have been brought on by COVID as it worked its way through the economy and through the housing industry.

ALEXIS CHRISTOFOROUS: I want to get back to one trend you pointed out at the top of our conversation in which you're seeing baby boomers sell the family home now that they have empty-nesters, and they're renting again. And this could also be because they're taking advantage of the fact that home prices are so high right now, they feel that they can make a nice profit selling the family home. But is the trend that they're going to rent for the long term, or are they just downsizing, waiting for the right opportunity to get back in and buy something, but buy something a little smaller?

ROBERT PINNEGAR: It's a mixture of a lot of things. But we have definitely seen the expansion of the senior community. It's not the same thing it was once upon a time. These are communities that have a lot of vibrancy, that have a lot of activities, that have things that are constantly going on. It's not the rest home type environment. People want that access to that vibrancy. And so we are definitely seeing people are moving into that space.

Typically, you either see people that are moving in that want a very large and deluxe unit, or you see people that are more in fixed incomes that want a very small unit. But they just want access to that lifestyle. So that is happening. But there are also a group of baby boomers that are simply sitting on the sidelines and waiting to see when the market settles. And they will buy during the down cycle. And that's just typical of the housing market. And those people have that ability to speculate.

ALEXIS CHRISTOFOROUS: All right. Robert Pinnegar, president and CEO of the National Apartment Association, thanks so much for being with us today.