The COVID-19 pandemic that kept more Chattanoogans in their homes in the past year has also boosted the cost of where they live.
Chattanooga residential rental rates rose nearly twice as fast as the national average in the past year, according to a new study of apartment rents by the online real estate website Zumper.
The average rent for a one-bedroom apartment in Chattanooga rose by 10% in the past year to $1,100 a month while the typical two-bedroom apartment unit in Chattanooga increased an average 12.7% to $1,150 per month, Zumper said.
Although rental rates in Chattanooga remained slightly below the average for the top 100 U.S. cities, the local increases in rent exceeded the national rise, which varied from 4.9% for a one-bedroom up to 6.5% for a two-bedroom unit.
"People are finding Chattanooga as a place to come and live and we're getting a lot of people moving here, fortunately, or unfortunately depending upon your perspective," said Robert Backer, president of the Greater Chattanooga Association of Realtors and the owner of several rented duplex residences. "There has also been a tremendous interest among investors wanting to buy into our rental market, often at much higher prices than what the former owners paid, and that has also tended to push up rental rates."
Over the past five years, out-of-state investors have collectively spent more than $500 million buying apartments and other rental units in Chattanooga, including a $63.1 million purchase of the Blue Bird Apartments last year and a $57.2 million acquisition of the Integra Vistas in Hixson earlier this month. Also this month, a Knoxville real estate company bought the Riverview Grande Apartments in North Chattanooga for $41.7 million, or $10.7 million more than what the property sold for just two years ago.
In many instances, such as the $9.1 million purchase of the Rainbow Creek apartments on Standifer Gap Road in late 2019, the new owners are sprucing up the properties and raising rental rates or even dropping their section 8 affordable rental contracts with their tenants.
Murat Arik, director of the Business and Economic Research Center at Middle Tennessee State University which tracks the state's housing industry, said Tennessee has attracted more residents moving into the state during the pandemic and the number of housing units hasn't always kept pace with population growth, especially in the faster-growing urban areas.
"The housing industry has been the engine of growth in Tennessee, especially during the pandemic," Dr. Arik said. "We have an inflow of people from places like California, New York and other states where housing costs are often higher and where they are used to paying higher rents. That has tended to push up rental rates in Nashville, Memphis, Knoxville and Chattanooga where we tend to see more growth."
In a new housing analysis prepared for the Tennessee Housing Development Authority, Arik said that rental vacancies have dropped to some of the lowest levels in recent years across the state, although vacancy rates vary according to local markets and property sites. Tennessee's overall rental vacancy of 6.4% was below the U.S. vacancy rate of 6.8% in the first quarter, according to the MTSU study.
The inventory of homes for sale on the market also has dropped to historic lows this spring as sales have continued to grow with fewer houses for sale on the market. Last month, the typical home listed on the Realtors' multiple listing service in Chattanooga sold in only 22 days, or half the time it took to sell a home a year earlier and less than a fourth of the time it took to sell a home a couple of years ago.
The number of homes on the market in May totaled 934, down 58.4% from a year ago. Despite the more limited listings, the number of home sales closed last month was up 26.4% from a year earlier to 1,059.
With a leaner inventory and higher demand, the median price of homes sold by Chattanooga Realtors in May jumped 17.6% from a year ago to a record high of $260,000.
The higher price of home purchases kept more people renting houses and that, in turn, has helped to boost rental rates, Backer said.
Nationally, after a year of stagnant growth, "rents are on the rise in a major way," said Zumper data analyst Jeff Andrews.
"Rents nationally show astonishing growth compared to last year," he said. "When the pandemic hit in March 2020, it set off an unexpected explosion in migration that made local housing markets hyper competitive and led to unprecedented growth in home price appreciation.
Chattanooga ranked as the 51st most expensive rental market in the nation last month among the top 100 U.S. cities.
Chattanooga rents are still only about 40% of the rents charged in San Francisco, the most expensive U.S. city in the Zumper stud, and average less than in nearby Atlanta or Nashville. But Chattanooga rental rates averaged more than other Southern markets like Knoxville, Memphis and Louisville.
Contact Dave Flessner at firstname.lastname@example.org or 423-757-6340