South Floridians are no longer likely to face a tense period of rapidly rising rents as rent growth cools, but the region still faces greater monthly costs than most of the state’s other large metropolitan areas.
According to researchers at Florida Atlantic University and two other schools rental premiums — the extra charge for a rental that exceeds its market value, which is measured by a percentage — soared into double-digit territory about a year ago.
Since then, those percentages have fallen to less than 1% in many large cities — but not in South Florida, where the premium remains nearly 4%.
Now, those numbers are “trending where they should be, but they’re not going down,” said Ken H. Johnson, a real estate economist with FAU’s College of Business.
Why is South Florida struggling to catch up with its counterparts?
Developers “just can’t build fast enough,” Johnson said. “What’s driving that? I don’t know. Could it be developer reluctance? Could it be inefficient delivery systems through state, county and local governments? I tend to think it’s probably a little bit of all of them.”
In other cities such as Orlando, Tampa or Jacksonville, developers appear to be building fast enough to “catch up,” he said, while South Florida lags behind.
“I’m not going to be surprised to see a couple of these markets oversupply,” he said, adding that builders could oversupply in the greater Miami area, but that’s not the current problem — rather than too much, there is not enough.
Richard Greenfield, a broker associate with The Keyes Company, which operates in Miami-Dade, Broward, Palm Beach, Martin, St. Lucie and Volusia counties, said demand is highest for “the cheap stuff.”
“The small studios are always in high demand. Everybody wants the cheapest rent,” he said.
Greenfield, who operates in Miami, said he sees the market normalizing most in the “urban core” because more inventory is available: Think two or three-bedroom homes for $4,000 to $5,000 a month.
Playing a factor in part is the short-term-rental market, which gobbles up homes that could otherwise add to the region’s long-term supply. “I do think that (short-term rentals) have some, not a lot, but some effect on your regular Joe who wants to sign a year lease,” he said.
Greenfield said he’s averse to short-term rentals, calling them a “flimsy business model for an investor,” even though he conceded that some people do make “big money” from that market.
Greenfield said he believes another factor in the fight South Florida residents face against rent prices is struggling income growth. According to Federal Reserve Economic Data, the estimate for the average median household income in 2022 for Miami-Dade County was about $67,952. In Broward County, it was $70,834, and in Palm Beach County, it was $76,713.
Meanwhile, FAU researchers determined that South Florida households require at least $112,000 a year to avoid being “house poor,” which is when one’s income is swallowed almost entirely by housing expenses.
“Getting to that landlord standard of three times the rent can be a challenge,” Greenfield said.
He advises the landlords he works with to “give the smallest increase that you can stand to give even though your costs of ownership have gone up in terms of taxes, insurance and maintenance fees.”
“That’s the best advice I can give them because it’s better if you’re a landlord to get a little bit less than market rent and have 100% occupancy then have 30 or 45 days of vacancy to get an extra 100 bucks a month,” he said.
The good news?
“Depending on how the inventory looks over the next 12 months, we may see some softening in the market,” Greenfield said.