One out of every 26 new apartments built nationwide since just before the pandemic have been built in South Florida.
Over 14,000 new units open just this year. It is a brisk pace for a rental market that was squeezed by few apartments and a spike in demand during the COVID-19 pandemic migration to Florida.
Over the past five years, over 74,000 new apartments have been built in the region. The Miami area has experienced the fourth highest growth for new apartments among major U.S. metropolitan areas.
Another 75,000 new units are expected over the next four years, according to data from national apartment search website RentCafe.
"It's unprecedented," said Doug Ressler, manager of business intelligence with Yardi Matrix, which provides the data to RentCafe's. Over a half million new apartments will be added nationwide this year. That marks a record number of newly built units.
What the apartment market is experiencing was set in motion in the early years of the pandemic, especially in South Florida.
"It usually takes about anywhere between 36 to 44 months to be able to build a property – mid-rise or high-rise," Ressler said. "What happened is when interest rates were fairly low, about three or four years ago, folks started building them. So now what you see is that surge coming out."
The urge to build new apartments in South Florida goes back further than the pandemic, though. Housing values cratered during the Great Recession in 2006 and 2007. Few developers wanted to build apartment buildings even though interest rates were historically low and property values had fallen. Getting a construction loan at that time would have been difficult as lenders were stuck sorting out an avalanche of mortgage foreclosures.
Demand for housing returned thanks to lower prices and low borrowing rates. That soaked up the supply of condos and single family homes, pushing up prices. But builders were moved slower. It would take 12 years for home builders nationwide to return to building the same number of homes they were constructing before the housing crash. Yet, the regional population continued growing, feeding demand for housing, including rental apartments.
READ MORE: Old condos crowd the market for sellers in South Florida as post-Surfside reforms loom
The high housing prices combined with the pandemic, keeping many renters in a lease instead of entering the home buying market. When inflation soared and the Federal Reserve responded by rising interest rates, homeowners felt comfortable staying put if they had gotten a mortgage when rates were ultra-low. This, too, slowed what would had been a supply of homes coming to market.
"Developers now have a cohort of people, whether they be Baby Boomers or whether they be millennials or Gen Xers who are renting longer," said Ressler.
This has led to strong demand for apartments but low supply. Rents were poised to rise quickly, which is what they did. And they haven't cooled off.
Miami had the fourth highest median rent for a 1-bedroom apartment last month at just over $2,800, according to rental website Zumper. That represents a 4.5% increase from a year ago even with thousands of new apartments coming to the market. The high average rent indicates many rents would be considered near or luxury-level apartments.
The new units are spread across the region, with the highest number in the city of Miami. Several factors play into the location for the new supply of apartments, but the overriding feature is people. "Because in order to rent apartments, I need people," Ressler said. He noted there are other top considerations in South Florida, such as zoning rules, the cost of land and climate change.
Areas not prone to flooding may rise in value compared to other locations.
Tens of thousands of more apartments may not mean renting becomes more affordable, though. Annual rental increases have slowed compared to recent years, but Miami remains one of the 10 most expensive regions to rent a home.
Borrowing costs are higher now compared to a few years ago, building costs are higher and insurance costs continue climbing. These make it more expensive to build an apartment. And that adds to the pressure for higher rents.
Additionally, Florida's condominium market is undergoing a tectonic change. New regulations go into effect at the end of the year designed to make older condo buildings more structurally and financially secure. The reforms were put into place after the collapse of the Champlain South Tower in Surfside in 2021. The disaster killed 98 people.
READ MORE: How condo reform laws sent monthly assessments for condo owners through the roof
"Safety is a big issue," said Ressler. He met both physical safety and financial safety.
Condos at least three stories tall and at least 30 years old must undergo a structural inspection by New Year's Eve. Beginning next year, condo association need to start setting aside money in their budgets for regular repairs and maintenance of items such as roofs, plumbing and electrical systems. The new rules have led to a sharp increase in both regular monthly fees and special assessments for many condo owners.
Such expenses may push some of those owners to consider selling and looking to rent an apartment, adding additional demand in the market for rentals.
