In 2009, a Boston resident paid $300,000 for a parking spot. Four years later and a few blocks away, another resident purchased side-by-side spots for $560,000. When a city's affluent residents pay more for a parking spot than the vast majority of the world pays for their homes, it's safe to say that city is a very expensive place to live.
What makes Boston such a magnet for so many people willing to pay more for everything? That's easy. The Boston metropolitan area's dozens of universities and colleges provide its massive 363 billion dollar economy, the sixth largest in the U.S., with talented and well-educated workers to fill the many available jobs.
Housing all these people is Boston's biggest challenge right now. The Greater Boston Housing Report Card, prepared by the Dukakis Center for Urban and Regional Policy at Northeastern University, finds that Boston is currently facing a serious housing shortage. As we know, shortages, in the face of strong demand, cause prices to rise. It's safe to say that the owners of rental housing are making a killing in Beantown.
The authors of the Dukakis Center's housing report state that, since 2009, Boston rents have increased a whopping 15.4 percent and that "unless the supply of rental units in Greater Boston is large enough to drive the vacancy rate to 5.50 percent or higher, effective rents will continue to increase."
Q2 2015 Boston Rental Market Update
Boston is currently the second-best market for rental real estate investment in the Northeastern U.S. and the 22nd-best market in the U.S. as a whole. These rankings are more or less the same as last quarter; Boston managed to jump up just one spot in the national rankings but failed to improve in the regional rankings.
Three critical real estate statistics that rental real estate investors often use to evaluate the attractiveness of housing markets aren't particularly flattering for Boston. Beantown's extremely low year-over-year rent appreciation of just 1.17 percent, more than 75 percent less than the national average last quarter, indicates that local landlords likely won't benefit from massive spikes in rental rates. Boston property values appreciated 4.51 percent year-over-year in Q2 2015, a respectable increase that was nonetheless slightly less than the national average during that period, 5.08 percent. Finally, the average capitalization rate for Boston rentals, which compares annual rents to property values, was 6.09 percent. While entirely respectable, this cap rate was around 10 percent less than the national average in Q2 2015, meaning that considerably more lucrative rental real estate investments can be found elsewhere.
Despite these somewhat concerning statistics, Boston remains an excellent market for rental property owners. The median age of Boston's housing inventory is currently 59 days, slightly lower than the national average, and its vacancy rate of 2.60 percent was the fifth-lowest in the U.S. last quarter. Taken together, these statistics indicate that demand for Boston housing is quite strong, and will likely remain that way for many quarters to come.
Q1 2015 Boston Rental Market Update
Given how strong demand for Boston rental housing is, you shouldn't be surprised to learn that the Q1 2015 Rental Ranking Report found it to be the second-best market for rental real estate investors in the Northeastern U.S. (one place ahead of regional rival New York City) and 23rd-best in the country as a whole. Boston's extremely low vacancy rate of just 4.10 percent is the 12th lowest in the U.S. and almost half the national average. Our Future Rental Availability Index predicts that Boston's housing shortages won't end anytime soon, either; we estimate that close to 30,000 more rental units will be needed in the Boston metropolitan area in the coming year.
Boston's year-over-year property value appreciation of almost six percent should raise eyebrows, as that degree of appreciation is impressive for such an expensive housing market. While year-over-year job growth was just 1.16 percent, one of the lowest job gains in the U.S. during that time frame, our Job Availability Index shows that future job growth will be more impressive; Boston ranks ninth-best in the U.S. for this metric in the Q1 2015 Rental Ranking Report.
What data is this Rental Ranking Report based on?
To calculate the statistics found in the Q2 2015 Rental Ranking Report, All Property Management gathered data, including the most recent government housing and jobs data, for 75 metros across the United States. Specifically, we looked at home vacancy, capitalization, home value appreciation and job growth rates, changes in rental prices, and the median number of days properties have been on the market to determine which U.S. metros will give investors the highest returns on rental investments. Click here to learn more about the Rental Ranking metrics.
Should I invest in Boston rental property?
While Boston's modest rental capitalization rate of 6.09 percent is slightly below the national average, its strong economy and massive, perennially-replenishing population of student renters means that owning rental property there will likely always net healthy returns. Owning Boston rental property is all the more attractive when you factor in recent property value appreciation rates.
Thinking about renting out a property in Boston? Save time, avoid hassle and maximize your rental income by having a professional property management company operate your rental property for you. Click here to get a free quote from a local property manager or call 877-780-4510 to have the All Property Management staff get quotes for you.
All Property Management specializes in connecting rental property owners with professional property managers in communities across the United States. These property managers help set rental rates, advertise properties, screen and manage tenants, collect rent, manage vendor relationships and ensure compliance with local, state and federal housing regulations. They take the hassle and worry out of managing rental properties - all while maximizing rental property owners' rental incomes.