Apartment vacancy rates are at a 37-year low, dropping to 5.6 percent during the fourth quarter of 2021, according to the U.S. Census Bureau’s Quarterly Residential Vacancies and Homeowners report. That’s the lowest apartment vacancy rate on record since the first quarter of 1984.
Decreased supply sent apartment rents soaring. The Rent. Rent Report found that the average year-over-year rent for a one-bedroom apartment increased 22.1 percent between December 2020 and December 2021. The average rent for a two-bedroom apartment increased 18.3 percent during the same time period.
Increasing rents, pandemic-related financial issues, rising inflation and a lack of rental options forced many renters to stay in their current homes. A competitive housing market prevented other renters from becoming home buyers. That strained the apartment supply even more.
An overview of apartment vacancy rates in recent history
The recent apartment vacancy rate of 5.6 percent is lower than it’s been at any point in the pandemic, according to the U.S. Census Bureau. That includes recent dips to 5.8 percent in Q3 2021 and 5.7 percent in Q2 2020. It’s also 0.9 percent lower than the Q4 2020 apartment vacancy rate of 6.5 percent.
The lowest apartment vacancy rate on record — 5.0 percent — has occurred seven times since the U.S. Census Bureau first began keeping track during the first quarter of 1956. This very low apartment vacancy rate coincides with periods of economic upheaval or recession.
The bureau recorded an apartment vacancy rate of 5.0 percent three times (Q1, Q3 and Q4) in 1978. The U.S. was experiencing a period of rapid inflation that reached double digits in 1979. In 1980, the U.S. entered its most severe recession since the Great Depression. Just 5 percent of U.S. apartments were vacant in the fourth quarter of 1980. July of 1981 ushered in another recession, and the apartment vacancy rate stayed at 5.0 percent during the second, third and fourth quarters of that year.
The highest apartment vacancy rate on record is 11.1 percent, logged during the third quarter of 2009 when large numbers of formally owner-occupied homes flooded the market after widespread foreclosures during the Great Recession.
Apartment vacancy rates by statistical area
Apartment vacancy rates vary by community type, according to the U.S. Census Bureau’s most recent report. The vacancy rate was highest (7.7 percent) outside of metropolitan statistical areas (MSAs). This term describes a high-density population center typically comprised of one large principal city and the communities around it.
Principal cities themselves followed with a vacancy rate of 5.7 percent. Apartment vacancy rates were lowest in the suburbs at just 5.1 percent.
Vacancy rates in U.S. principal cities and suburbs were lower than in the fourth quarter of 2020. But the rate outside MSAs showed no statistically meaningful change from the fourth quarter 2020 rate. The widespread exodus of renters from metropolitan areas that some experts predicted didn’t continue into the second year of the pandemic.
Apartment vacancy rates by region
There are few apartments currently available across the country. But certain regions have been hit harder than others.
Apartment vacancy rates are lowest in the West (4 percent) and the Northeast (4.3 percent). More rental units are available in the Midwest, where the vacancy rate is 6.5 percent. There’s even more inventory in the South, with its vacancy rate of 6.9 percent.
The Northeast, Midwest and West all saw their Q4 2021 vacancy rates decrease from the year before. In the South, inventory held steady. The apartment vacancy rate at the end of 2021 wasn’t statistically different from the rate in the fourth quarter of 2020.
Why apartment vacancy rates are so low now
The pandemic ushered in a period of economic uncertainty. Employers cut hours and laid off employees temporarily or permanently. Online schooling and a lack of daycare options forced parents to change the way they worked — or stop working entirely. Rising inflation and increased food insecurity added even more financial and emotional stress.
In response, many American renters stayed in their current homes. The Pew Research Center revealed that just 8 percent of Americans moved from one residence to another between March 2020 and March 20221. That’s the lowest rate since record-keeping started more than 70 years ago. For renters who wanted to leave the rental market and buy a home, things were even more difficult.
Housing inventory is low
Potential buyers have fewer houses to choose from. According to Redfin, the number of homes for sale in December 2021 dropped 21 percent since December 2020. The number of newly listed homes decreased too. It was down 11.8 percent year-over-year.
The combination of strong demand and low supply drives up prices. Historically high home prices in 2021 put homeownership out of reach for many renters.
Home prices are rising
Redfin reports that home prices were up 15.1 percent year-over-year in December 2021. In that same month, 42.8 percent of homes sold above list price. (That’s up 9.2 percent from December 2020.)
Homes that sell for more than the list price often receive multiple offers (including cash offers). This very competitive market favors sellers and keeps home inventory moving. Redfin also reports that homes are selling faster, spending an average of 25 median days on the market in December 2021, down from 6 median days in December 2020.
The occupancy fallacy
It’s human nature to think that things will continue the way they are right now. But history reveals that low apartment vacancy rates don’t last forever.
The occupancy fallacy cautions against assuming that currently occupied units will stay occupied in the future. Renter sentiment, decreasing pandemic pressures and a less intense housing market could mean more renters will be on the move in 2022.
Renters want to move
Just because renters are staying put now doesn’t mean that they won’t move later. The November 2021 RentPath survey revealed that 60 percent of renters planned to search for a different apartment or home within the next six months.
Survey respondents said that saving money, finding a home that included outdoor green space and living in a safer neighborhood were their top reasons for wanting to move. Until they’re able to move, many renters will opt for a month-to-month lease or make plans to sublet when they leave. Those who must make long-distance moves should start researching options as soon as possible.
Historically, more renters stay in place during the winter months when school is in session, then move when the weather warms. This normal seasonal migration will likely open up additional apartments this spring. That’s especially true if pandemic pressures wane and renters feel more comfortable making long-term plans.
A changing housing market might make long-term planning a little easier. Redfin economists predict expansive home price growth (in the double digits since the summer of 2020) will slow to an annual rate of 7 percent by the end of 2022. This will likely make more apartment inventory available and give renters a broader range of options.
Apartment vacancy rates are at their lowest rate in over 30 years. But a period of renter turnover is coming. Renters and property owners should plan accordingly.
