What will 2024 hold for property management companies in the U.S.?
Some rental market trends will continue from the previous year—from rental investors’ reluctance to acquire new properties in a higher-mortgage-rate environment, to increased competition from real estate agencies in a sluggish housing market.
Other trends are brand new this year—like rent growth moving to markets outside of the Sun Belt, and an increase in the number of Accidental Landlords in property managers’ client base.
No matter what the new year holds, Buildium’s research is here to help you prepare your business for growth—starting now, with our 13 rental market predictions for 2024.
1. Rent growth will remain slow in construction-heavy markets, with higher cap rates to be found in smaller cities outside the Sun Belt.
Throughout 2022 and 2023, more apartments have been constructed in markets across the U.S. than we’ve seen since the 1980s, particularly in hot Sun Belt cities like Phoenix and Austin. Deliveries will remain elevated throughout 2024, with more than 600,000 new market-rate apartments expected to come online. This will put downward pressure on rents until 2025, when apartment completions are expected to slow.
So, where are property managers and investors finding stronger rent growth and higher cap rates? In the new year, we’ll be looking to smaller cities with less new construction, particularly in the Midwest, Mid-Atlantic, New England, and South Central regions of the U.S. Check out our list of 60 up-and-coming markets to watch in 2024.
2. The population of Accidental Landlords will increase as the housing market remains sluggish, motivating more sellers to rent out their homes.
Accidental Landlords—rental owners who acquired their rental properties due to circumstance, and don’t consider themselves investors—are on the rise for the first time since 2018. Why? A stagnant housing market is motivating some potential homesellers to rent out their properties rather than putting them up for sale, at least until conditions turn more favorable.
In 2024, investors will continue to represent the majority of rental owners currently in the market. However, property management companies should expect to see an increase in the number of Accidental Landlords within their client base—particularly because Accidental Landlords are the most likely to seek out a property manager’s help in running their rentals.
3. Many investors will remain reluctant to acquire new properties as home prices and mortgage rates remain high, coupled with low inventory.
Though 66% of small-portfolio rental investors continue to see residential rentals as a smart investment at this moment in time, just 35% actually plan to add new rental properties to their portfolios in 2024 and 2025. This is unlikely to change as long as mortgage rates remain high, and as low inventory in the housing market keeps home prices elevated—though some investors may reenter the market as interest rates come down throughout the year.
The good news is that among rental owners who don’t plan to grow, the vast majority plan to stay the same size, whether by holding onto their current properties or by selling some off while acquiring new ones. Those who plan to sell off properties without replacing them are in the minority, with just 13% planning to downsize their portfolios in the next two years.
4. Third-party property management companies will turn to new expansion tactics rather than relying on clients’ portfolio growth.
Traditionally, a majority of third-party property management companies have grown their portfolios by encouraging their clients to acquire new properties. 46% of companies still plan to do so in 2024 and 2025—but with a minority of rental owners planning to acquire new properties in the next two years, other portfolio growth tactics are increasing in importance.
What are those alternative tactics? First and foremost, 71% of companies will be focused on recruiting new, growth-oriented clients. But about a third of companies will be turning to acquisition strategies, such as acquiring other property management companies or investors’ portfolios, or purchasing or building new properties of their own. In addition, a third of companies will expand the types of properties they manage, or the geographic regions where they operate.
5. Competition from real estate agencies will be steep as the housing market remains slow and the effects of the lawsuit against NAR unfold.
Throughout 2023, property management companies faced competition from real estate agencies compensating for the sluggish sales market by dabbling in property management. To put this slow market into perspective: As of March 2023, there were 1.5 million Realtors, but just 563,000 homes for sale.
The competition will likely grow worse in 2024. Not only does the sales market remain slow, a lawsuit against the National Association of Realtors threatens to push more than half of real estate agents out of the profession. Much about the case remains uncertain at the moment, including a potential appeal by NAR; but it wouldn’t be surprising to see more real estate agencies expanding into rental property management to shore up their revenue going forward. Property management companies can respond by showing their expertise and delivering the personalized, tech-enabled service that has always differentiated them from the competition.
6. Companies will continue to focus on improving efficiency through technology as profitability remains strained amidst a lingering labor shortage.
Between elevated costs for materials, labor, taxes, and insurance, plus the ongoing worker shortage, property management companies are heavily focused on operating as efficiently as possible. These conditions make it all the more critical that companies find the right technology to help them spend less time processing payments, leases, maintenance requests, and reports so they can focus on growth and meaningful customer interactions instead.
Which technologies will allow them to accomplish these aims? First and foremost is property management software like Buildium. In addition, 25% of property management companies currently employ virtual assistants to help them extend the capabilities of their team, most often in roles involving accounting, leasing, maintenance, marketing, and admin work. Some companies are also testing out artificial intelligence tools like ChatGPT to help them generate text for rental listings, social media posts, communication templates, and website copy.
7. Renters and rental owners will expect rental processes like payments, maintenance, and communications to be seamless.
Over the last two years, we’ve witnessed a sea change in renters’ and rental owners’ level of comfort with technology. Today, 95% of rental owners—particularly investors—would like to do business with their property management company online. This includes sending and receiving payments, signing documents, viewing reports, and communicating with their property management team.
In addition, 90% of renters would like to complete rental processes like paying rent, submitting maintenance requests, signing leases online, and communicating with their property manager online. This preference cuts across generations, with even 72% of the oldest renters expressing an interest in online rental processes. This creates an opportunity for property management companies to differentiate themselves from the competition through the use of technology.
8. Renters’ finances will be strained as rents remain high, savings decrease, and debt increases.
Over the last year, renters’ household incomes have stayed roughly the same as inflation and high rent prices have continued to strain affordability. As a result, our surveys have found, fewer renters are able to pay their bills on time and in full; debt among renters is on the upswing; and savings are on the decline. With student loan payments having resumed in 2023, these conditions are expected to worsen in the coming year.
With rent prices remaining significantly higher than they were prior to the pandemic, property management companies are increasingly concerned with renter quality, and are increasing their focus on tenant screening as the pool of qualified renters shrinks. In some hot markets, however, rental demand is so strong—and housing inventory is so limited—that the supply of qualified renters is less of an issue when vacancies arise.
9. The number of families living in rental housing will increase, resulting in strong demand for single-family rental properties.
For the second year in a row, multigenerational households and couples with kids are the two fastest-growing household types in the population of renters that Buildium surveys. Although couples with kids remain the most common type of household in our sample, families are quickly catching up, thanks to the growth of two household arrangements: families with kids and parents with adult children living together in rental housing.
As households grow slightly larger—and as couples and families continue to be priced out of the housing market—we expect to see demand remain strong for single-family rentals.
10. The population of older renters will increase, resulting in greater need for accessible, affordable rental properties.
The number of older adults in the U.S. is growing: By 2030, more than 1 in 5 Americans will be of retirement age. Also on the uptick is the population of older adults who rent their homes: Between 2010 and 2020, the number of older adult renters grew by 32%.
This growing population of older residents—many of whom will live alone—will need access to ADA-accessible dwellings within communities that can support their evolving needs. But they’ll also need to be affordable to residents living on a fixed income, neither of which our current stock of rental housing can accommodate on the scale that’s needed.
11. Policies targeting the affordable housing shortage will gain traction in municipalities across the U.S.
Awareness of the crisis-level shortage of affordable housing seems to be reaching a tipping point. With rent and home prices having reached all-time highs during the pandemic, a number of policies are coming into vogue that have the potential to increase the amount of housing being built in municipalities across the U.S.
More rezoning efforts were undertaken in 2023 than in any year prior. Successes from recent years including doing away with single-family zoning, subsidizing office-to-residential conversions, allowing accessory dwelling units, and decreasing parking requirements, with more cities expected to follow suit in 2024.
12. Increasing attention will be paid to the fees that property management companies charge.
In July, the White House released a statement on “junk fees” in rental housing that sent ripples throughout the property management industry. Defined as fees that are added onto rents that exceed the cost of providing a service, or that renters assume are included, the memo encouraged rental housing providers to follow in the footsteps of companies like Zillow in providing greater transparency when charging fees to renters.
In 2024, rental housing providers will continue to reevaluate the fees that they charge to renters, ensuring that they’re charging fair amounts for services provided and are disclosing these fees during the application and leasing process.
13. Extreme weather will become the new normal, requiring preparations in disaster-prone areas, and impacting insurance rates.
Between 1980 and 2022, the number of natural disasters causing more than $1 billion in damage increased from 3 to 18. From wildfires and rising temperatures to hurricanes and flooding, the frequency of climate events is undeniably on the rise, and will only continue in 2024. That makes it all the more important that property management companies and rental property owners have plans to prepare their properties for the natural disasters and extreme conditions that are most likely to impact their area.
In addition, the increasing occurrence and cost of natural disasters is impacting the insurance market. According to apartment developers, insurance premiums and deductibles have increased by two to three times over the last five years, and those in hard-hit states like California, Florida, Texas, and Louisiana have seen triple-digit increases. 2024 is likely to see costs continue to rise, as well as more insurance providers following State Farm and Allstate in placing restrictions on which areas they cover.
The 2024 State of the Property Management Industry Report
Learn more about the challenges and opportunities that property management companies will face in 2024 and beyond in our recently released Property Management Industry Report. Every year, Buildium surveys thousands of property management professionals, renters, and rental owners to give companies a 360-degree view of the industry. Download your free copy now.Read more on Industry Intel