While recent news has touted the benefits of company relocations and the in-migration of individuals with elevated net worths into South Florida, this has also come at a cost. An influx of $23 billion in adjusted household gross income from 2019 through 2021 has had a significant impact on the market’s affordability, pushing South Florida’s inflation above the national average since early 2022.
In fact, since May 2023 inflation in the market has run two times higher than the national average, representing the second-highest inflation reading after Tampa, as of the latest June reading. Recent inflation readings indicate that the bulk of this cost increase has been driven by housing-related costs including shelter costs and housing-related fuels and utilities.
Shelter costs, which are primarily driven by owners' equivalent rent and rent of primary residence, have risen substantially over the last few years as market rents and home values have skyrocketed. Despite this recent rise, annual growth in shelter costs appears to have peaked in March of 2023 at 17% and now stands at 16% as of the June reading.
The impact of shelter costs on inflation is expected to continue to fade going forward, resulting in a downward trajectory for overall inflation in the coming months. This softening in shelter costs is heralded by the recent slowdown in apartment rent growth and home value gains as tracked by CoStar and the S&P/Case-Shiller Home Price Index. These measures of rents and home prices can typically lead the shelter inflation figure by almost a year, and current trends indicate that we are past peak gains.
Apartment rent growth peaked in March of 2022 and home price gains peaked in May of that year as well, consistently slowing since. This paints a positive picture for inflation readings over the coming months, one that will likely result in much-needed pricing relief for South Florida’s households. Still, softer shelter costs will take time to make their way through the system, likely resulting in elevated inflation readings for this category through the end of the year.
Additionally, a significant contraction in home prices and apartment rents is increasingly unlikely. Condo and single-family home values continued to rise over 5% annually across most of South Florida as of July, according to Miami Realtor’s data. Also, apartment rent gains, though much slower than recent elevated growth, remain slightly positive across all South Florida markets.
The stickiness of rents and home values, which so far have yet to come down from record levels, is increasingly becoming a concern for residents. Household incomes across South Florida remain below the U.S. average, and wage gains have failed to keep pace with inflation. Gains in average hourly earnings for South Florida have underperformed compared to the U.S. average since September of 2022 and have cooled significantly in the last few months. This will continue to place pressure on residents’ abilities to lease and purchase properties at current elevated pricing levels.
This mismatch between shelter costs and incomes has resulted in a continual rise in evictions across South Florida. After the lifting of the eviction moratorium in the second half of 2020, evictions began to rise, and since the second half of 2022, evictions have remained elevated relative to pre-pandemic levels, according to data collected by the Eviction Lab at Princeton University.
A limited inventory of active for-sale listings and reduced single-family home construction, coupled with a high share of cash sales and the return of international buyers from countries like Colombia, Germany, Venezuela and Argentina, will continue to prop up home values as well. This will continue to sideline would-be homeowners into the rental market, and increasingly constrained household finances will drive these renters towards more affordable rental options.
These dynamics, coupled with the limited construction of affordable properties, will continue to drive stronger rent gains across 1 to 3 Star-rated apartment properties as well as lower-cost areas within South Florida. So far, this dynamic has already begun to play out across star ratings, and we are also beginning to see it play out across areas, with low asking rent areas such as Westchester-Tamiami, Miami Gardens-Opa-Locka, Hialeah-Miami Lakes, Oakland Park-Lauderhill, Belle Glade and Greenacres seeing strong rent growth.
These trends of increasing demand for more affordable housing options are likely to continue over the next few years as the construction pipeline remains concentrated on luxury properties. These properties, which are so far only offering some rent concessions, are unlikely to significantly adjust asking rents to attract lower-income residents, who are increasingly being left with fewer and fewer housing options.
