Are rentals the next housing bubble? If you ask builders and brokers, the answer will likely be yes. October’s multifamily apartment starts were up 10 percent from a month earlier and 63 percent from a year earlier, suggesting that contractors are scrambling to keep up with the demand.
And in some sought-after areas such as New York City and Los Angeles, brokers report that rentals are going for more than their monthly asking prices, similar to what was happening with home prices during the homebuying frenzy a few years ago.
Much of the demand is a consequence of people losing their homes after the housing bubble burst. But The Wall Street Journal also reports an increase in “trophy” rentals by rich renters who prefer luxury leases over homeownership. That’s driving up rents.
This particular segment of the rich population prefers to rent, so they can keep capital flowing into the stock market or a business. But they don’t want to forfeit a wealthy lifestyle. Brokers in New York say they’re showing apartments that rent for $15,000 a month and higher, and it’s the same story in San Francisco and Los Angeles.
In Los Angeles, Developer Rick Caruso just opened an 87-unit apartment building near Beverly Hills that features a three-bedroom, fully furnished penthouse unit with a monthly rent of $40,000.
Of course, if you truly want to rent like the rich, you could shell out $500,000 to $600,000 a month for the Beverly Hills home formerly owned by William Randolph Hearst. But for the average renter, the supply-and-demand situation means that apartment buildings approved for construction now won’t be available for a year or two, so finding a deal will be difficult.
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