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South Florida Remains a Prime Multifamily Market

MIAMI Commercal Economic Insights from the MIAMI REALTORS Chief Economist
MIAMI Commercal Economic Insights from the MIAMI REALTORS Chief Economist

By Gay Cororaton, MIAMI REALTORS® Chief Economist

The 2023 Q2 South Florida Market Report for Multifamily Investors was written by Gay Cororaton, Chief Economist, and Danielle Blake, Chief of Commercial.

 

South Florida’s multifamily investment outlook is fundamentally strong. South Florida’s multifamily market is likely to continue to face strong demand from a growing workforce and retiring Baby Boomers. The impacts from the recent legislation will enhance the climate for landlords doing business in Florida and increase the supply of affordable rental housing.

 

South Florida’s strong fundamentals will tend to continue to attract investors seeking a safe and good return on their investment. Cities with a high rent to mortgage ratio indicate the need for rental housing: Hialeah, Miami Beach, North Miami Beach, Dania Beach, Hallandale, Coral Springs, Deerfield Beach, Pembroke Pines, Boynton Beach, and Jensen Beach.

 

South Florida Economic Fundamentals Remain Strong

 

South Florida’s underlying fundamentals for the multifamily market remain strong due to the sustained domestic and international migration and the area’s job growth. Florida continues to attract businesses and retirees due to its favorable tax environment. In the first half of 2023, the total out-of-state and foreign driver licenses exchanged for a Florida license in the counties of Miami-Dade, Broward, Palm Beach, and Martin rose at an annual rate of 18% to 79,778. The increase is due to the number of foreign driver license exchanges, which rose 56% to 42,690 in the first half of 2023, as the number of out-of-state driver license exchanges fell 8% to 37,033, according to MIAMI REALTORS® analysis of Florida Motor Vehicle and Highway Safety. In June, 61,239 more people were employed compared to the prior year in the four counties, a 2% year-over-year increase that slightly outpaces the national rate of 1.8%.

Elevated Rental Rates & Deficient Inventory for the Working Class

 

With more listings on the market, the median asking rents have declined in Miami-Dade, Broward, and Palm Beach compared to one year ago. However, rents remain highly elevated compared to pre-pandemic levels. In Miami-Dade, the median asking rent was down 8.8% to $3,100 (61% higher than in June 2019); in Broward, down 3.2% to $2,300 (44% higher than in June 2019); and in Palm Beach, down 2% to $2,450 (53% higher than in June 2019). However, in Martin County, the median asking rent rose 10.5% to $2,100 and is 45% higher than the level in June 2019.

 

Total multifamily rentals in the four South Florida counties listed in June on the MIAMI REALTORS® MLS and Rental Beast non-MLS platform rose to 14,824 units (7,936 listings one year ago). However, units with asking rent of below $2,000 have dwindled to 12% of total listings from 70% in June 2019.

 

Multifamily properties leased more quickly compared to one year ago and prior to the pandemic, at a median of 32 days in the four South Florida counties. With its strong market fundamentals, Rent Cafe named the city of Miami as the nation’s hottest renting spot.

 

Opportunity Knocks: More Rental Inventory + High Demand for Multifamily and Single-family Rentals

 

Strong rental demand since the pandemic has driven up rents over the monthly mortgage payment.

 

And that is a game-changer.

 

As of June 2023, the median multifamily asking rents were 20% to 40% higher than the mortgage payment on a condominium or townhome purchased at the median sales price in Miami-Dade ($3,100 median asking rent vs. $2,435 mortgage payment), Broward ($2,300 vs. $1,631), Palm Beach ($2,450 vs. $1,893), and Martin ($2,100 vs. $1,782). Condominium owners pay the additional HOA fees, but those fees pay for the upkeep of the property which preserves or increases the value of the property.

 

Here’s where it gets interesting…

 

While multifamily asking rents declined compared to last year, the median single-family asking rents have increased or have not declined as much. In Miami-Dade, the median single-family asking rent rose 2.8% (-8.8% for multifamily). In Broward, the asking rent fell 0.5% (-3.2% for multifamily). In Palm Beach, the asking rent rose 9.7% (-2.0% for multifamily). However, in Martin, the median single-family asking rent fell 5.5% (+10.5% for multifamily).

 

The rise in single-family rent growth is indicative of the strong demand for single-family rentals due to the tight supply of for-sale homes, the need for workspaces in the home because of the rise of hybrid work schedules, and the demand for short-term vacation rentals. Single-family rentals continued to gain a higher market share of the residential rental business, at 34% as of June 2023, up from 28% in June 2019.

 

Rental Market Responds to 2022 Economic, Legislative & Regulatory Environment

 

In 2021, South Florida experienced an unprecedented year in real estate. Record-setting low interest rates, high housing demand, job growth, increased migration and low housing supply produced a sudden rise in home prices and residential rents. In a short-time period, asking rents had increased by an average of nearly 50 percent in April 2022 in the four counties.

 

By early 2022, the government stepped in to regulate. The Miami-Dade County Board of County Commissioners passed two ordinances to restore balance in the changing market:

 

(1) 60-Day Notification for Rental Increases & Termination of Month-to-Month Rentals, which required landlords to give tenant at least 60 days’ written notice before increasing rent by more than 5% (Broward County passed a similar ordinance)*, and;

 

(2) Tenant’s Bill of Rights, which created an Office of Housing Advocacy, established private right of action for tenants to sue landlords for violations of the tenant’s bill of rights, allowed tenants to make repairs and deduct rent, etc. (Broward County’s Tenant’s Bill of Right and Notice of Late Fee Ordinance).*[1]

 

In addition to these changes, the Federal Reserve increased interest rates in March 2022 for the first time since 2018 to combat inflation. As a result, the market shifted, and rental inventory surged.

 

Florida Legislature Pre-empts & Provides a New Plan: Live Local Act

 

This year, the Florida Legislature passed HB 1417 to expressly pre-empt the ordinances referenced above and passed a new plan, SB 102, the Live Local Act. This law requires local governments to authorize multifamily or mixed-use development in commercial or industrial zones if at least 65% of the total sq. ft. is residential and 40% of the residential units are “affordable” for at least 30 years; increases height and density for these projects by-right and expedites the process. It also provides historic funding to increase the supply of new apartment units; makes housing more affordable through corporate tax credits; and, expands property tax exemptions for multifamily property owners”. For more info, visit Florida Housing Finance Corporation.

 

 

the median sales price in Miami-Dade ($3,100 median asking rent vs. $2,435 mortgage payment), Broward ($2,300 vs. $1,631), Palm Beach ($2,450 vs. $1,893), and Martin ($2,100 vs. $1,782). Condominium owners pay the additional HOA fees, but those fees pay for the upkeep of the property which preserves or increases the value of the property.

 

Here’s where it gets interesting…

 

While multifamily asking rents have declined compared to last year, the median single-family asking rents have increased or have not declined as much. In Miami-Dade, the median single-family asking rent rose 2.8% (-8.8% for multifamily). In Broward, the asking rent fell 0.5% (-3.2% for multifamily). In Palm Beach, the asking rent rose 9.7% (-2.0% for multifamily). However, in Martin, the median single-family asking rent fell 5.5% (+10.5% for multifamily).

 

The rise in single-family rent growth is indicative of the strong demand for single-family rentals due to the tight supply of for-sale homes, the need for workspaces in the home because of the rise of hybrid work schedules, and the demand for short-term vacation rentals. Single-family rentals continued to gain a higher market share of the residential rental business, at 34% as of June 2023, up from 28% in June 2019.

 

Rental Market Responds to 2022 Economic, Legislative & Regulatory Environment

 

In 2021, South Florida experienced an unprecedented year in real estate. Record-setting low interest rates, high housing demand, job growth, increased migration and low housing supply produced a sudden rise in home prices and residential rents. In a short-time period, asking rents had increased by an average of nearly 50 percent in April 2022 in the four counties.

 

By early 2022, the government stepped in to regulate. The Miami-Dade County Board of County Commissioners passed two ordinances to restore balance in the changing market:

 

(1) 60-Day Notification for Rental Increases & Termination of Month-to-Month Rentals, which required landlords to give tenant at least 60 days’ written notice before increasing rent by more than 5% (Broward County passed a similar ordinance)*, and;

 

(2) Tenant’s Bill of Rights, which created an Office of Housing Advocacy, established private right of action for tenants to sue landlords for violations of the tenant’s bill of rights, allowed tenants to make repairs and deduct rent, etc. (Broward County’s Tenant’s Bill of Right and Notice of Late Fee Ordinance).*[2]

 

In addition to these changes, the Federal Reserve increased interest rates in March 2022 for the first time since 2018 to combat inflation. As a result, the market shifted, and rental inventory surged.

 

Florida Legislature Pre-empts & Provides a New Plan: Live Local Act

 

This year, the Florida Legislature passed HB 1417 to expressly pre-empt the ordinances referenced above and passed a new plan, SB 102, the Live Local Act. This law requires local governments to authorize multifamily or mixed-use development in commercial or industrial zones if at least 65% of the total sq. ft. is residential and 40% of the residential units are “affordable” for at least 30 years; increases height and density for these projects by-right and expedites the process. It also provides historic funding to increase the supply of new apartment units; makes housing more affordable through corporate tax credits; and, expands property tax exemptions for multifamily property owners”. For more info, visit Florida Housing Finance Corporation.

[1] [1] *- Chapter 2023-314, Laws of Florida, now expressly pre-empts these ordinances.

[2] [1] *- Chapter 2023-314, Laws of Florida, now expressly pre-empts these ordinances.

 

South Florida Remains a Prime Multifamily Market
South Florida Remains a Prime Multifamily Market

 

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