The rental housing industry looks closely at markets growing in population—but Census data is just the beginning.

People are still moving to metropolitan areas in the Sun Belt, according to the latest population estimates from the U.S. Census. In the rental housing industry, Census data is the first factor in a long equation used to underwrite investments. But firms have to consider many other factors as they plan new investments or simply try to operate their existing portfolios in 2024. 

For just one example, managers in many growing metro areas in the Sun Belt now offer concessions to compete with new properties around them. 

“It’s really the micro approach: Which neighborhoods do we want to be in? What city blocks? Where’s the path of growth and within each city where are the challenges?” says Scott Meyer, Co-Founder and Chief Financial Officer of PTM Partners.

Sarasota attracts apartment investors

Strong demographics attracted apartment companies like PTM to look closely at opportunities to invest in Sarasota, Fla., a small city near the larger metro of Tampa. Sarasota’s healthy apartment market, relative affordability and attractive downtown motivated PTM to invest.

The Sarasota metro area ranked fourth in the nation for net in-migration in 2022, according to data from the U.S. Census. The population of Sarasota is also likely to grow by 1.21% in 2024, according to projections from CoStar. That’s close to triple the likely population growth in the rest of the U.S. of just 0.5%.

In addition, the population of people ages 20-29 in Sarasota grew 10% during the past five years, according to Census data.

“Our ideal community supports a younger professional or young family,” says Frank Roessler, Co-Founder and CEO of Ashcroft, a real estate investment firm headquartered in New York City. 

In October 2023, Ashcroft acquired Halston Lakeside, a community of 358 garden apartments, built in 1996. Ashcroft carefully chose a property that could be rented at a price point appealing to young professionals and families, in a location likely to increase in value over Ashcroft’s usual five-year hold period. “It’s about a four-minute drive into that Mayberry sort of town square—that beautiful part of Sarasota,” says Roessler.

Sarasota is also relatively affordable–for both apartment investors and apartment renters. 

“On a relative basis, the west coast of Florida is going to be cheaper than the east coast of Florida and South Florida,” says Meyer. In October 2023, PTM bought a site at Sarasota to build 50 new for-rent townhouses and retail space at 520 Payne Parkway. “It’s a quaint, walkable city and a nice place to live.”

People are still moving to the Southeast

During the pandemic, a flood of people left crowded cities for less expensive, relatively undeveloped metro areas in the Sun Belt and similar markets. People are still moving to the region in 2024, though the number of people moving has dropped back to the levels common before the pandemic. From January 2023 through September, the nation absorbed 185,000 apartment units. That rate is just 15,000 units less than the 20-year average, according to RealPage. The overwhelming majority (70%) of absorption in 2023 has been in the Sun Belt and Mountain region states. 

But demand for apartments is one of many factors investors consider before they decide to buy or build an apartment property. Companies also consider how many new apartments are already under construction in their area nearby. Throughout the Southeast, developers now have hundreds of thousands of new apartments under construction. In some growing cities in the Sun Belt, renters are leasing up new apartments relatively quickly. “Dallas in particular has had a tremendous amount of oncoming supply that’s being absorbed relatively well,” says Roessler.

The number of vacant apartments is rising in Atlanta, however. “Atlanta still has population growth, but it’s really being impacted by all of the supply of new apartments,” says Roessler. 

Cities where developers are building thousands of new apartments may also be vulnerable if the economy slows in 2024—as some apartment investors expect it will. 

“The weakening labor force suggests that there may be fewer state-to-state moves as migration slows during economic downturns,” says Greg Bates, CEO of GID, a real estate investment firm based in Atlanta. “This may have an outsized impact on the Sun Belt, which requires peak demand to absorb peak supply.” 

Investors willing to hold apartment properties for a longer time are willing to consider buying apartment properties in overbuilt markets—if they believe the long-term demand for apartments is strong enough. 

“We’ve bought at least two properties in Phoenix over the past 24 months,” says Justin Fossum, Senior Director of Asset Management for Hamilton Zanze & Co., an apartment investment company based in San Francisco. “It’s going to be overbuilt there, but we are bullish about Phoenix in the long term.”

Phoenix is likely to continue to gain residents from Southern California as the local economy continues to grow. Microchip manufacturing is expected to grow in Phoenix because of investment spurred by the $60 billion federal CHIPS and Science Act of 2022.

“I would definitely put Phoenix on the list of places someone from our firm would get on a plane to visit a property,” says Hamilton Zanze has also followed employers to growing markets throughout the Sun Belt. 

That includes hedge funds and private equity firms that have moved to South Florida and asset managers like AllianceBernstein, which recently opened an office in Nashville, Tenn. Hamilton Zanze now owns nine properties in Nashville. In regions where the population is growing quickly, apartment investors look for markets and submarkets where that growth is concentrated around a central hub, rather than spread over an ever-expanding suburban area, says Bates.

For example, in the mid-2010s, Austin, Texas, grew quickly in a relatively concentrated area, says Bates. In addition, the people moving to Austin earned significantly more than the local population, on average, creating more demand for higher priced homes and apartments. “This offered multifamily investors significant opportunities to generate strong returns,” says Bates.

New apartments in Boise, built to appeal to new Boise residents

A few metro areas far north of the Sun Belt are also growing quickly in population, due in part to people moving from more expensive cities on the West Coast.

“Idaho has experienced explosive growth in the past several years amid an influx of new arrivals from California and the Northwest,” says Kevin Newman, CEO and Creative Director for Newman Garrison + Partners, an architecture firm based in Costa Mesa, Calif. The firm has designed two apartment communities now under construction in Boise, Idaho.

Its Seasons on the Bench community will create 354 new apartments with links to surrounding properties and a shared-use pathway along a canal on the site to promote Boise’s vision for better bicycle and pedestrian connectivity.

“Boise is an incredibly active and community-driven market, and therefore, the renters moving to this area are attracted to the city’s lifestyle and natural beauty,” says Newman.

Don’t undercount gateway cities Migration doesn’t just go in one direction. Many expensive gateway cities are still growing in population. People from other countries are moving to these gateway cities at the same time as other residents move away. Several of these gateway cities are also famously difficult places to build new apartments. As a result, the five largest gateway markets added just 1.1% to their inventory of apartments in 2023, compared to 3.2% in the Sun Belt markets, according to RealPage. As a result, the five gateway markets are seeing apartment occupancy rates stabilize more rapidly than the Sun Belt.

Because of net migration, the population of Washington, D.C., grew by 5,500 between July 2022 and July 2023, according to the annual estimates from the U.S. Census. Massachusetts, including most of the Boston metro area, also grew by 11,500 over the same period for the same reasons. Washington, including Seattle, grew by 13,600.

In contrast, New York state shrank by roughly 143,000 people between July 2022 and July 2023, according to the annual estimates from the Census. However, the annual Census estimates have undercounted the population of New York state in the past. “It’s not a bulletproof number,” says Fossum. 

In 2020, the once-a-decade, full U.S. Census added 800,000 New Yorkers that had been missed by earlier annual Census estimates. State officials spent millions to make sure the 2020 Census included even populations that can be difficult to count, such as undocumented immigrants not eager to communicate with Census officials and people living in other temporary arrangements.

“Maybe people of a certain age are moving out of New York—but younger people are moving there out of college or for entry-level jobs,” says Meyer. “It’s really just a rotation of people.”

PTM came close to buying a site to build an apartment property in Jersey City, N.J., across the Hudson River from Manhattan, in 2022. “We certainly got pretty far along with a couple of projects,” says Meyer. “It’s a market that we really know well and like.” 

Investors like Hamilton Zanze still look carefully at Census data. But they also watch other indicators. That includes announcements from companies opening new offices or moving their headquarters. Investors also check websites to see how much companies are charging to rent a moving truck traveling into or out of cities like Los Angeles. “During the pandemic, it cost you almost nothing… to go into California and the price was sky-high to 
get out,” says Fossum.

Bendix Anderson is a freelance writer.