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Renters looking for an apartment as Boston’s all-important September lease rollover date approaches face daunting challenges – even by the standards of the region’s typically competitive market. 

A perfect storm of economic factors are combining to push apartment rents higher in mid-2023, even as discounts have become widespread in other pricey metros such as San Francisco. Greater Boston apartment rents rose 8 percent in the past six months, leading the nation’s 51 largest metro areas, according to Apartment List data. 

Multifamily industry executives point the finger at a chronic regional undersupply of new housing, due to anti-density zoning and slow permitting processes. More recently, rising construction and borrowing costs have made it more difficult for developers to finance new projects, shrinking the ranks of good development sites. 

“I’ve never seen more development deals [for sale] cross my desk,” said Demetrios Salpoglou, CEO of listing service Boston Pads. “Developers are reluctant to build even if they have the permits. What that tells me is you’ve got a challenge. Every developer wants to build it on their own, because that’s where they make the most money.” 

On the demand side, the region’s economy has remained resilient, with the job pool increasing 3.7 percent over the past 12 months and intensifying competition for housing. 

And average 30-year fixed-rate mortgage rates hit 6.8 percent in early July, making it harder for renters to transition to home ownership. Current mortgage rates represent a 28 percent increase in borrowing costs for homebuyers compared with a year ago, according to Freddie Mac data. 

Recent industry reports hint at the unprecedented hurdles facing local renters, from record monthly payments to fierce competition for units rivaling the heyday of the for-sale housing market. 

Apartment-hunters in Greater Boston have to compete with an average of 12 others seeking to rent the same vacant unit, according to a report last week by Rent Cafe. 

The Smith No. 99 in Boston’s South End is marketing 304 apartments starting at $2,975 in preparation for a fall opening. Image courtesy of Leggat McCall Properties

Supply Constraints Likely to Linger 

According to research by brokerage Colliers, the roughly 17,000 apartments currently under construction in Greater Boston represent a 20 percent decline from the pre-COVID peak of the previous decade. 

During the first six months of 2023, the Boston Planning & Development Agency approved 2,209 multifamily units, compared with 2,647 during the same period of 2022. 

Financing for rental properties is now less attractive to lenders than for-sale condominium projects, a prominent luxury brokerage executive said, raising questions about how many of the approved projects will get under way soon.  

“Unless it was already funded, it’s really a challenge to get anything out of the ground,” said Sue Hawkes, managing director of The Collaborative Cos. “People are putting a lot of the [approved] apartment buildings on hold in Boston because of the challenges with costs and unions and affordable units. Boston is facing a challenging future in the next few years as it relates to rental development.” 

Apartment developers are gravitating toward sites in inner suburbs, which have building sites and lower land and construction costs, Hawkes said. 

One of the larger projects scheduled to open in Boston this fall, The Smith No. 99 in the South End, began marketing units last week starting at $2,975. The 304-unit complex at 99 East Dedham St. touts skyline views from private balconies and a 2-story amenity space including a rooftop swimming pool. 

Other newly completed complexes such as 212 Stuart St. in Bay Village and One65 Main in Cambridge are achieving average effective rents over $5,000, according to Collaborative Cos. data. 

Beyond the premium rents commanded at the top end of market, however, few bargains are available for market-rate units in smaller mid-market buildings. 

The average rent for units in the Boston Pads’ database is $3,047, up nearly 14 percent from a year ago. Reflecting the increasingly competitive environment, the average days a listing spends on the market has declined 33 percent. 

Renters postponing home ownership and remaining in apartments longer are creating further strain on a limited supply, said Salpoglou, the Boston Pads CEO. 

Developers have put permitted projects on the market in neighborhoods including Readville and Allston after determining the projects are financially unfeasible. 

Steve Adams

Suburbs Lead Way in Rent Growth 

According to Apartment List data, suburban markets including Woburn, Medford and Norwood have led the area in highest recent rent increases. Developers such as Greystar are targeting the middle rent market with new projects such as its 330-unit Mason in Everett. 

Despite limited tenant concession packages, the property at 101 Mill Road which opened May 30 is more than 33 percent leased, Greystar Managing Director Gary Kerr said. The lease-up rate, at average rents of $2,500 to $2,800, far exceeds the company’s projections, Kerr said. 

Although Greystar is focusing on suburban markets as the best development opportunities, Kerr predicts continuing rent escalation throughout the region. 

“You’re going to see a general rent increase in urban and suburban markets at a similar rate. It’s the same demand, and the future lack of supply continues to be a real concern,” he said.