For many years we at JPM, LLC have done a year end rental market summary for our property/owner clients. We have split the summary into 3 sections. The bad, which are obviously the market factors negatively affecting the rental market and investments, the good, and an outlook for the 2025 rental market. So here we go! We’ll start with the bad news first.
Two words: New construction. Large new Class A multi-family developments flooded the Treasure Valley in 2024. These were all projects that had been in some phase of development for several years, and received occupancy permits and came onto the rental market in 2024. The majority of these projects undoubtedly secured financing several years ago when interest rates were still in the 2-4% range, prior to the Federal Reserve’s aggressive interest rate increases. The projects are owned by both large national REITS such as Blackrock and Greystone, smaller private investment groups, and even several local homebuilder companies that diversified into the multi-family space. These are large 200-400 unit developments with many amenities such as on-site clubhouses for tenant use, on-site gyms, on-site maintenance staff, EV car charging stations, pools, hot tubs, dog parks, etc.
Based on recent data from Costar Group, the Treasure Valley is expected to have 5,000 new rental units come into the rental market within an 18 month time period of 2024, ending in summer of 2025. Based on a recent survey from Idaho Dept. of Labor, the estimated population growth into the Treasure Valley is around 13,000 people per year. So, obviously it will take several years for the valley to absorb the large supply of new housing that has entered the market.
In order to justify high construction costs while still providing a return to investors, leasing rates for these new Class A multi rentals pushed market rates. Studios and 1 beds are priced at $1,300 and up, and 2 beds are $1,700 and higher. So, the bottom line is that the Treasure Valley rental market has been flooded in 2024. Single family homes aside, the supply of multi-family apartments exceeds demand, and prospects have unlimited choices on location, style, and amenities offered with these new properties. These new developments are also offering very generous move-in specials to try and get them filled – some even offering as much as two months free rent on new leases.
The other major negative factor influencing rental investment in 2024 is property insurance. Anyone that has paid an insurance billing on their investment or personal property in 2024 has noticed the large rise in premium. This is due to national insurance companies getting battered with storm related claims across the country over the last several years. These claims are from an increase in occurrence of hurricanes, wildfires, and flooding issues. Insurance providers blame the re-insurance market for the higher premiums, and large re-insurance companies like Berkshire Hathaway and Lloyd’s of London blame weather events related to global warming.
Enough of that, let’s move on to the Good. Firstly, due to large amounts of population and construction growth in both Ada and Canyon counties, overall property tax premiums in both counties remained level in 2024, and many properties actually decreased by as much as 10% in tax billings. This is because the tax base of appraised land and improvements grew to such an extent that the taxing districts could easily collect their levied amounts through the larger tax base.
Secondly, the Treasure Valley continues to be a center of bustling growth in population and economy, with large tech companies continuing to develop and move to the area. Meta, Micron, and Amazon all continue to build out and expand their facilities in the Valley, bringing more investment and employees into our rental market. Despite what happens with the rental market in the short term, this continued growth will mean higher property values and eventually rents in the long term.
Lastly, interest rates stayed relatively high in 2024 from previous years, incentivizing many renters to continue renting instead of purchasing homes. In addition, Robinhood recently reported the median age of first-time home buyers in the US rose to a record 38 this year, up from 35 last year. Median income of first time buyers climbed to $97K per year, and down payment amounts rose to 9% of purchase price, a 25 year high Robinhood reported. Housing affordability has been a big issue in this election, and the fresh housing data is another sign that younger generations are being boxed out of home ownership.
Onto the 2025 rental market and investment outlook. While property insurance rates for all types of real estate will likely continue to rise in 2025, larger premiums will hopefully be offset once again by the level of decreasing property taxes due to an ever expanding tax base in Ada and Canyon county.
Continued population influx will continue to absorb the large amount of vacant new construction apartments in 2025. However, it will likely take into 2026 for these properties to be filled. Due to higher interest rates, building permits for any new construction multi-family developments are reported to have stopped for now. As long as interest rates remain higher for longer, we expect new construction of multi-family to remain stalled.
As seen in Q3 and Q4 2024, these new construction multi-family developments will continue their tactics to attract tenants. These strategies are damaging to the overall rental market, and undoubtedly take some unknown percentage of our tenants away from the older, established multi rentals. There are 3 primary incentives they are using.
- Rent specials – 1 month free, 2 months free, half off first month, etc. Giving up money up front to maintain their very high monthly rent rates
- Reduced security deposits – $500 deposits, $99 deposits. They are sacrificing future vacancy expenses in order to secure tenants now.
- Pet friendly. Dogs, cats, come one, come all. Primarily using hard surface flooring, if anyone spends 10 minutes looking at rental listings on Zillow, you will see that “No Pets” listings do not exist any more.
To combat these tactics, our ownership and management strategy in 2025 must be the following 4 part strategy.
- Retain our current good and medium quality tenants any way possible. Rents will stay flat until the new housing has been filled and utilized. Lease renewals must be done carefully and strategically.
- Price vacant listings at or slightly below market rent rates. The market is very competitive right now.
- Vacant units need to be clean and updated as much as possible, with the brass and chrome shiny. Front doors and windows need to be clean, yards taken care of. Curb appeal matters now more than ever. Units need to look, smell, and feel good to prospects.
- Continue to transition properties, as budgets allow, to hard surface flooring, away from carpet and pad. Listing properties as “No Pets” is no longer an option, as 9 out of 10 rental prospects have some form of pet or animal
All that being said, we at JPM are thankful for the trust of all of our owner clients, and the opportunity to manage your real estate assets. We treat every property as if it were our own, and each tenant as if we know them personally. We work for a wonderful group of real estate investor clients, and we are truly grateful for your partnership. Happy Holidays to all of our clients, and Happy New Year! Every year has it’s own challenges, but long term, Real Estate investment remains one of the safest and most productive investment classes, and we look forward to 2025 being a year of rental investment stability, and quality investment returns.
Johnson Property Management, LLC