Rent Growth Expected to Continue in Midwest, Despite Market Volatility

Can Rent Continue to Grow? 

Short answer — in the Midwest, yes. If we told you a 50% rent increase would still be considered affordable, would you look at us funny?

It’s no secret rents grew across the country at abnormal rates. This rampant growth is normalizing as the Fed tightens monetary policy and Americans ready themselves for the looming threat of a recession. Recent CPI numbers are the highest we’ve seen in quite some time, and the public eye is closely following all things “inflation” and “recession.” In fact, according to a recent Wall Street Journal article, 18% of US adults have chosen to move back in with their parents or get a roommate to combat the surging cost of goods.

So as everyday costs grow and budgets tighten, how will apartment investments fair in the future? We decided to focus on and analyze the basic concept of what percentage of income people pay towards their rent, a.k.a rent-to-income ratio. The national rent-to-median-family-income ratio is 26%, while the Great Lake region averages 19%. You can see in Figure 1 below that outside of Chicago, the six markets have long been discounted to the national average. 

We looked at seven major markets in the Great Lakes region to project how much rents can grow and still be considered a value/below or average compared to other markets. The markets that we researched are Chicago, Columbus, Detroit, Grand Rapids, Indianapolis, Milwaukee, and Minneapolis.

As shown in Figure 2, we calculated the ‘Growth Runway’ by computing how much rent could grow from the current state to still be considered in line with the national average rent to median family income ratio. Five out of the seven markets have a growth runway of over 30%. Columbus, Detroit, Minneapolis, and Indianapolis all have 45-51% rental growth opportunity. Milwaukee and Grand Rapids have a growth runway of 28-31%, which is an average jump in rent of approximately $400 per unit. 

• Columbus: 50.8% discount or $614
• Minneapolis: 49.5% discount or $729
• Indianapolis: 46.4% discount or $556
• Detroit: 45.7% discount or $571
• Milwaukee: 30.5% discount or $437
• Grand Rapids: 28.2% discount or $357
• Chicago: 3.2% discount or $60

Now, we don’t expect the market to absorb these increases instantaneously, though we see this as a reassuring data point that multifamily operations will be able to continue to grow as we work through the current market volatility.

Interested in learning more? Reach out to Ryan Pena at [email protected] and Grace Cameron at [email protected].