Nearly three years into a rental market characterized by a steep decline followed by surging increases, the market has showed some signs of starting to cool at the upper level, observers say, though renters most in need of affordable housing will likely continue to struggle in 2023.
It’s a trend that Scott Veloso, a real estate agent with Providence-based Residential Properties Ltd., has noted among the approximately 1,000 units his team represents statewide.
“The amenity-heavy, or luxury market, is where we’re seeing pushback,” he said. “The more affordable apartments are still very high in demand.”
Renters nationwide, particularly in Providence, saw some sharp rate decreases during the early days of the COVID-19 pandemic, only for prices to surge the following year as people returned to in-person, pre-pandemic activities.
A report released in December by QuoteWizard supports the idea that these hikes are slowing, with the insurance comparison website reporting that rental rates for an average one-bedroom apartment in Rhode Island, which QuoteWizard places at $1,121, have decreased by 7% since June. However, rents remain 20% higher than they were in 2020.
Veloso doesn’t expect these rates will climb in 2023.
“We believe we’ve seen the peak of rental prices at this point for a while,” Veloso said, with landlords facing more pushback from tenants when they try to raise the rent during lease renewals, and more turnover compared with the earlier days of the pandemic.
“We were having 10% turnover, and now we’re getting back to the industry standard of maybe [30%], 35%,” Veloso said. “And then [in 2023], we think we’ll see the same. There’s a lot more inventory coming on the market right now and people have more choices, so they’re moving from an older apartment into one of the newer options.”
But this trend has mostly stayed among tenants with a higher budget, Veloso said. The lower-priced apartments his team rents, such as a $1,200 one-bedroom or $1,600 two-bedroom apartment, are still in high demand, he noted, and “don’t sit on the market for more than a few days at this point.
“It’s the higher-end stuff, the $2,100 bedroom or the $3,000 two-bedroom [apartment] where we’re seeing things go down quite a bit,” he said.
For those higher-end apartments, some landlords are offering incentives, such as halting rent for the first couple months after a lease signing or waiving security deposits, to fully rent their buildings, said Residential Properties CEO and President Sally Lapides.
The current higher vacancy rates arise from affordability issues, Lapides said, rather than a lack of demand for housing.
Part of that slowdown falls in line with regular, seasonal trends, Lapides said, as less people tend to move during the winter, with the market peaking around June through September.
Looking to 2023, Lapides doesn’t see significant relief for renters.
“Prices probably will not come down,” she said. “I think that prices will appreciate at normal appreciation, and that with the workforce making more money per hour nationally, we will see prices not going down but just stabilizing.”
That will pose a serious problem for many, she said, calling current rental rates “unaffordable for most working families” in Rhode Island.
Wages haven’t risen to match housing costs in Rhode Island, said Brenda Clement, executive director of HousingWorksRI at Roger Williams University. The nonprofit’s 2022 Housing Fact Book report found that 70% of jobs identified as “high growth occupations” in Rhode Island do not pay at least $24.32 an hour, the wage needed to afford an average two-bedroom rental in the Ocean State. And Burrillville is the only community in the state that offers affordable rentals.
In Providence, the availability of more and newer apartment units, such as the 500 South Water St. and 125 Wickenden St. complexes, is giving some renters more options and negotiating power, Veloso said.
But this new housing production pales in comparison to Rhode Island’s peak building era in the mid-1980s, Clement said, when the state was issuing around 7,500 new building permits per year at all income levels. For more than a decade, housing and production levels throughout Rhode Island have hovered around just over 1,000 new units per year.
Funding is just a part of it, Clement noted, and this problem will remain in place until the state and individual communities make reforms to municipal-level land use and zoning laws that bar many new developments – particularly those deemed affordable.
“We just have not been producing enough housing for workers at all income levels,” Clement said, “and unfortunately, it’s starting to catch up with us.”
Veloso has expected for some time that rents would eventually hit a ceiling.
“I do think there could be some price correction,” he noted. “I don’t think it’s going to be a very large amount, but I do think these landlords are going to have to adjust their prices to keep vacancy rates low.”
