Rental Costs Surge keeping Home Purchases A Better Option » Mortgage Masters Group
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Rental Costs Surge keeping Home Purchases A Better Option

Picture of a house for rent representing Rental Costs Surge keeping Home Purchases A Better Option

Low inventory, a flourishing housing market and exponential population growth have caused rental prices in the Sunshine State to explode.  Those rent leaps are causing hardship for workers and families across Florida. And they are driving
some residents to leave the state even as others flock here.

Florida’s median rent hit an all-time high of $1,705 per month in May, according to rental search website Apartment List, compared to $1,356 in the same month in 2021.

While some experts say the market could finally be getting some much needed reprieve after about a year of major increases, prices in 2022 are still at historic highs, and several regions in the state are considered overvalued.

And the sizzling market is slamming headfirst into an old adage about how much people should spend on housing. For decades, bankers and personal finance experts have recommended spending no more than 30% of your income on a rent or mortgage payment. But is that realistic in today’s hot market? And can renters still get a decent apartment following that 30%advice?

The answer: It depends on location and level of income. For renters who make a lot of money, higher monthly fees aren’t a problem. But what about people who make about the same as Florida’s median household income?

USA TODAY Network – Florida journalists settled on $1,500 as a benchmark after taking into account Florida’s median household income, which is$57,700. Thirty percent of $57,700 is $17,310, or $1,440 a month, so the team rounded that up to $1,500 to see what the median household could rent and still stay close to what experts recommend in terms of spending.

It is still possible to rent an apartment for $1,500 per month in Florida, but the size and quality of said unit can vary a lot, depending on the region.

Take Sarasota County, for example. Overall median rent hit $1,945 in May, a31.2% increase over the same month the year before and a 2.9% drop from April, according to Apartment List. Even the median price for a one-bedroom apartment in Sarasota is above the $1,500 threshold, at $1,540 per month. The median price for a two-bedroom is $1,894.

But there are some properties available at $1,500 or less, including one at1520 Glen Oaks Drive E., on the north side of Sarasota’s Bobby Jones Golf Club – a 639-square-foot one-bedroom for $1,450 per month.

Still, low-priced properties in the hot Sarasota market are few and far between.

“If somebody calls in and their budget is under $2,000, frankly, we tell them we won’t be able to assist them,” Jennifer Putnam, branch manager of Coldwell Banker Realty in Sarasota, said. “We tell them to go on Airbnb and go on the internet.”

Volusia County’s average rent jumped 2 1.88% year-over-year to $1,788 in May 2022, the 10th highest increase in the nation out of 108 metro areas measured by the Zillow Observed Rent Index, also known as ZORI.

An online search on May 31 found 469 apartment units available in Volusia County for $1,500 or less, including the Kabana Waterfront Living apartments at 303 and 261 Riverside Drive in Holly Hill, whose website listed one and two-bedroom units available from $1,475 to $1,750 a month. An Internet search in March showed rental rates for units at the Kabana apartments ranging from just over $1,200 to a high of $1,600 a month.

One unit available for $1,500 a month beginning June 10 is a one-bedroom, one-bath apartment on the second floor that offers 750 square feet of living space and a balcony with a view of the Halifax River.

The 108-unit complex was built in 1978 and consists of several two-story buildings surrounding a courtyard that includes a community swimming pool and a fitness center. It also has a dock and some outdoor grills.

Newcomers to Florida behind raging demand

Part of what is fueling the exponential growth in Florida is a huge migration of new residents. When COVID hit and the world went remote, many decided to ditch their urban dwellings in colder climates in favor of Florida lanais.

During the first three months of the year, nearly 10% of people searching for rental properties in Palm Beach, Broward and Miami-Dade counties were from New York, where higher leasing costs may make South Florida prices seem bargain-basement.

The search data from Apartment List’s first quarter migration report points to the Northeast’s interest as one reason for the significant rent hikes in the three counties, including Palm Beach County’s 27% increase for a one-bedroom apartment from May 2021 to May 2022. Last month, a one bedroom averaged$1,738, according to Apartment List.

A two-bedroom apartment also went up about 30% to a median price of$2,110.

In Jacksonville – and Northeast Florida as a whole – population growth has contributed to higher occupancy rates and, as a result, higher housing costs.

“I think Jacksonville is a really desirable city,” John Rutherford, senior vice president of investment sales at NAI Hallmark, said. “We have a good cost of living, great weather. [Jacksonville is] growing at 2.5% right now; historically it’s been 2% and the national average is less than 1%.”

Rutherford said occupancy rates are “very high,” and that this brings good news for the city gaining capital and more investment coming into the nearby communities.

“Jacksonville is still extremely affordable and, of the major markets in Florida, still one of the most affordable,” Rutherford said. “Yes, it’s gone up, but it’s still affordable for people with a rent-to-income ratio at roughly 20%, well below the 30% threshold that most economists consider a reasonable ratio for housing.”

Apartment List shows the median rent for Duval County in May was $1,471,with a two-bedroom renting for $1,432 and a one-bedroom for $1,197.

Still, Rutherford said there’s “definitely sticker shock for a lot of people who have been paying a certain rent.”

“The increase is there because of demand, and that demand is there because the quality of life is going up,” he said. “There are areas of town that offer amore affordable area, but the trade-off is some of those attractive features. In Jacksonville, we’re still seeing lower rent per square foot than other cities.”

Panhandle rents lower, not necessarily more affordable

As of May, the Pensacola metro area current median rent for an apartment was$1,552 a month, according to Apartment List. The median price for a one-bedroom was $1,199; a two-bedroom apartment goes for $1,399.

However, it’s rare to find a three bedroom apartment for $1,500. One and two-bedroom units are more common at this price point and most likely further away from downtown.

The median income for a renting household is approximately $37,000 in Pensacola, said Meredith Reeves, assistant housing director for the city of Pensacola. Many renters, she said, can’t afford $1,500 per month units.

“That median income includes the owners and renters. It’s the average of everybody,” Reeves said. “When you’re looking at the rental market, typically a renter household will have that lower median income.”

The lack of inventory for affordable options puts more strain on renters.

“There’s more scarcity the lower the person’s income,” Reeves said. “There are fewer units available for somebody that may only be able to afford $500 or$700 or $800 a month. Those are very difficult to find. It’s taking people longer to find units.”

Rob Warnock, senior research associate for Apartment List, said just 0.3% of the thousands of apartments on the company’s website in Southeast Florida were priced at $1,500 a month or lower.

But Warnock noted that most major apartment search sites favor newer, pricier, and corporate-managed properties, leaving out mom-and-pop rentals that are often more affordable.

“Craigslist is going to show many more $1,500 apartments than we do,” Warnock said. “Our list is not representative of the South Florida rental market as a whole.”

Residents throughout the state feeling the squeeze

While money flows into Florida from out of state, finding an affordable place to live is becoming incredibly stressful for those who were already here.

“Finding that apartment is becoming more difficult,” said Kenneth Delgado, senior pastor at The House Church in Palm Bay, Brevard County’s most populous city. “There’s a supply that’s limited, and the demand is very high.”

Delgado is an organizer of One Brevard, a coalition of dozens of faith based entities and businesses in Brevard County working to address a number of community issues, including affordable housing.

Bishop Merton L. Clark, co-president of Brevard Justice Ministry Inc. and pastor of Truth Revealed International Ministries in Palm Bay, said the apartment crunch is hitting residents of Brevard with an income of less than$46,000 a year hardest.

The Brevard Justice Ministry currently is working on finding solutions to affordable housing issues.

“It’s affecting folks who are struggling,” said Clark. “White, Black, Hispanic. It doesn’t matter. It’s affecting thousands of folks” in Brevard.

Florida’s capital city is also facing its own crisis. Tallahassee saw a 20% rent increase in 2021, and in February, Leon County and the city of Tallahassee governments held a joint workshop to tackle the issue.

For Leon County – including the city of Tallahassee – the average median income for a household of four is $76,400. A four-member household with an annual income of $6 1,050 is earning approximately 80% of the average median income, according to city and county housing reports.

If that household is spending more than $18,315 per year, or $1,526 per month, for housing, utilities, homeowners insurance, etc., the household is considered cost-burdened.

In Leon County, renter occupied households are nearly three times as likely to be cost-burdened than homeowner households.

The percentage of cost-burdened renters in Leon County (55%) is higher than the Florida average of cost-burdened renters (52%); while the percentage of cost-burdened homeowners in Leon County (20%) is lower than the Florida average of 25%.
As of early June, roughly 70 rental listings for at or around $1,500 were available in Tallahassee. Location, amenities and other factors are driving up interest in some properties compared to other listings.

Rami Deeb, who manages and owns several rental properties in Tallahassee, said he gets numerous inquiries from interested renters. He recently leased outa duplex in Frenchtown, the oldest primarily Black neighborhood in Florida, with three bedrooms and three bathrooms that’s a few blocks from the governor’s mansion.

A Florida State University law student will live in one unit and the other unit within the duplex will be used for his parents when they come in town to visit. Deeb said the duplex, built in 2007, attracts college students, but he’s seeing a shift.

“Occasionally a young family (shows interest), especially lately,” Deeb said. “There have been a lot of out-of-state young families or even older families that are wanting to move to Tallahassee because this is in their price range.”

Higher rent prices across the state doesn’t always mean residents are going to get better quality – at least not right away. In Volusia County, the Kabana apartments complex was sold on March 4 to a California investor for $18million, raising concerns by some residents that a significant rent hike was looming.

The website for the Kabana apartments as of May 31 described the complex as a “quaint and private oasis” featuring units with “immaculate waterfront views, chic hardwood floors, and a gourmet kitchen.”

But longtime resident David Litz said in a March interview that the pool had been closed for more than a year because of cracks in the structure. A tour of the building he lived in shortly after the Kabana’s sale showed dimly li hallways with cracks in the walls, and apartment units that did not appear to have been significantly updated since the 1970s.

Jessica Harris, assistant general manager for the Kabana apartments, said in March that her understanding was that the new owner did in fact plan to change rental rates, but added, “we’re going to renovate them first.”

When rent gets too high, people move

In some cases, rent increases are leading to a migration out of Florida. It’s the reverse of the narrative so often repeated. As the wealthy migrate in and pay cash for homes valued at previously unthinkable highs, the cost of living is becoming too much to bear for some locals.

That’s what happened to Tanya Rose, who moved to North Port in 1989 when she was 10 and lived there and in the Venice area until halfway through 2021.

Rose was living in North Port with roommates for $1,450 per month, until her landlord raised the rent to $2,400. That was when she realized it might be time to join the rest of her family in North Carolina.

She now works in a brand-new dermatology office and lives outside of Hickory, North Carolina. She said she’s run into people at work with a 941 area code, who have also moved to the area from North Port, Port Charlotte and Sarasota.

“Everybody’s flocking to Florida, but people who grew up in Florida can’t afford to stay,” Rose said. “It’s terrible. It’s sad. It’s a beautiful place to live, but it wasn’t feasible to go to work, pay bills and that’s it.”

Even those who can afford to pay more for rent are having trouble finding the right place. Vicki Tipton, who has rented a three-bedroom pool house in a North Port complex for the past three years, said in late May that she sent in nine different applications for various apartments only to be denied each time, she thinks because of her below-average credit.

Every application cost $50-$75 per person, Tipton said, and since they’re a family of four adults, each apartment application cost between $200 and $300.

Guerby Noel, a senior attorney of equity advocacy at Legal Services of Greater Miami, said that more middleclass tenants have been coming to his organization for help since the pandemic started. Many of them are also dealing with extraneous fees, which Noel said seem to be landlords’ way of recouping pandemic-related losses.

In Pensacola, a 29% rent change difference compared to the previous year has left many residents in a crunch.

It’s been tough, said Nicole St. Aubin Benavente, a broker at Realty Masters of Florida, the largest property management company in Pensacola. Our Florida, a program that offered COVID-19 rental assistance program offered during the pandemic, ended last month. As a result, Benavente said she’s seeing an uptick in delinquencies, and some renters are boxed out if they don’t have at least a 600 credit score.

“We had a gentleman in here last week. He said, ‘I have money. I’m living in a tent,’” she said. “We’re seeing more and more of that, where people are on Facebook and posting their setup of like, ‘I will be living in a car for a month .I need you to tell me where I can go to the bathroom’ or ‘Here’s my campground. Does anybody have a tarp?’” Tipton said she estimates her family has spent about $2,500 on application fees alone.

“I can’t get local Realtors to give me the time of day. They all want me to buy a house. Well, I don’t want to buy a house right now. I can ’t,” Tipton said. “I’m going to be paying an extra $1,000, more or less.”

Price of materials, other costs adding to the rent problem

Low inventory is partly to blame for soaring rental prices, but the firms that build the properties are facing their own challenges.

Total project cost at Verdex Construction, which builds rental units in most of Florida, has been increasing about 2% per month for the past year, said Rex Kirby, the company’s president.

Prices are up for concrete, rebar and scrap metal, exacerbated by Russia’s ongoing attack on Ukraine. It’s gotten to the point where Verdex has to have some pretty “unusual” conversations with its clients, mostly about how unpredictable pricing can be.

“It was very uncomfortable at the beginning because we’re supposed to be the experts, but people aren’t holding numbers for a couple of weeks,” Kirby said. “We have to educate them on what’s going on, explain it and be transparent.”

The Florida Housing Finance Corporation, the state entity focused on building new affordable housing, is putting most of its efforts into getting existing projects done, rather than renovating old ones, Trey Price, the corporation’s executive director, said.

Developers that are currently building affordable apartments through the finance corporation were awarded those deals years ago, before the market was the way it is now, Price said. Since costs have gone up so much, the Florida Housing Finance Corporation won’t penalize those developers for pulling out of the projects, he said, as it would have in the past.

Out of the roughly 200,000 units the corporation has built throughout the state, 98% of them are full, Price said. They’re affordable cost-wise, but aesthetically they don’t look any different from a market-rate complex with a clubhouse, he said. People who want a unit can expect to wait for months or even years.

“We’re making sure that units in the pipeline we’ve already awarded, that those get done,” Price said. “It’s really important to try to do what we can to get as many units as we can for our dollar. We’ve shifted some priorities away from redevelopment, because we need more units at this point.”

Larger market boom boosts rentals

One way that rental inventory has actually been boosted is through the booming housing market. Angela Waldrop, a rental/sales associate with Dale Sorensen Real Estate in Vero Beach, said in some cases, people are purchasing homes for retirement and renting them out in the meantime.

“I would say that it has increased, not decreased,” Waldrop said of the rental housing supply, “as more people are taking advantage of the increased rental rates. There is definitely an increase, in my opinion, of people purchasing prior to retirement and listing their home for rental in the meantime.

“Also, there has been an increase in people leaving their residences for the season and capitalizing on the rates. Oftentimes, taxes and insurance can be covered for the year with a one-month rental in February or March, as these are the two strongest months.”

Waldrop said the market for high end, shorter-term rentals in her area has heated as well.

“The rental market has been extremely competitive this past season,” Waldrop said. “A number of repeat Vero Beach renters were unable to secure a rental this year, as they have in the past. They could no longer do the month of February alone or a six-week rental, as they may have done for decades. To rent this past season, you had to rent for three-plus months, and, in many cases, the prices were significantly higher as well.”

Clients who are competing for properties have started to outbid each other by adding time to the rental, as opposed to going over the asking price, Waldrop said.

“Oceanfront rental prices were up 40% to 50%,” she said. “For example, one oceanfront client rented for $16,000 a month in 2021, $20,000 a month in 2022, and they have secured the same home for 2023 for $30,000 a month.”

For areas other than the oceanfront, Waldrop said, “there has been a 25% to 35% increase in the last year, but a 40% to 50% increase over two years.”

“The season was very competitive, and the prices were high in the 2022season,” Waldrop said. “I predict that it will be more difficult to secure a rental in 2023, as people have been far more panicked to secure a rental now for 2023 than in past years.

“I attribute this to the fact that they were unable to secure the type of rental in2022 that they are typically accustomed to – like the ability to secure a rental with a club membership, waterfront views, a pool or a pet-friendly rental.”

This year, Waldrop has secured rental deals for clients at prices as high as $50,000 for a one-month rental and $25,000 a month for an annual rental.

She believes the latter is the highest annual residential lease in Indian River County in at least the last five years, based on Realtors Association of Indian River County data.

Stevie Krumm, chief executive at Next Home Excellence, has been managing rental properties in Sarasota and Manatee counties for the past 15 years.

While demand has consistently been high for rental units in the area, the lack of inventory is a new phenomenon, she said.
“They (prices) are going to stay at this price until there’s new inventory,” she said.

For example, Krumm recently had a three-bedroom, two-bath, single-family home available for an annual lease. She marketed the property and found a potential renter almost immediately at $2,600 a month.

That same property just five years ago, priced at $1,600 to $1,700 a month, would likely have taken much longer to find a tenant.

She said that often when rents shoot up like this, people start blaming landlords for being greedy. But that isn’t looking at the full picture, she maintains.

She pointed to increased costs in maintenance and out of control insurance premiums. Many insurance companies are no longer covering roofs older than 15 years, leading to large replacement bills for landlords.

Even then, some of her landlords have made only modest price increases, she said. Despite market rents soaring near 50% in the area, some of her landlords raised rent by as little as $150 a month.

“That would be a large increase in previous years, but because many other people have seen $500 rent increases, the tenants were grateful,” she said.

Still, in an area where property values have increased by about a third, it is “understandable the owners want to capture some of the increased value.”

“There is definitely an increase, in my opinion, of people purchasing prior to retirement and listing their home for rental in the meantime.”

USA TODAY NETWORK – Florida reporters Dave Berman of Florida Today, Laura Layden of the Naples Daily News, TaMaryn Waters of the Tallahassee Democrat, Alexandria Mansfield of the Florida Times-Union, Clayton Park of the Daytona Beach News-Journal and Kate Cimini of the Fort Myers News-Press contributed to this report.



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