While stagnating home prices and sales dominate real estate news every month as of late, one housing sector continues its strong recovery: apartments. The U.S. Census Bureau recently reported that the national rental vacancy rate dipped below 10 percent during each of the first two quarters of 2011—the first time that has happened since 2006. The volume of apartment property sales is increasing, building prices are rising, and even rents are inching up in most metropolitan markets.

The reason is simple: rising demand from homeowners-turned-renters. Harvard University’s Joint Center for Housing Studies estimates that almost 4 million U.S. households have transitioned from owning to renting since 2004. This shift started out strongest in larger coastal cities such as New York, San Francisco, and Washington, D.C., but the trend is showing signs of moving inland. 

Forbes magazine, with the help of California real estate investment firm Marcus & Millichap, recently rated the best big cities for renters. Their evaluations were based on the following criteria: average rent, change in rent, vacancy rate, and the cost of renting versus owning. The ratings indicated that the best places were predominantly in the central and southern United States, from Columbus, Ohio, to Phoenix and from Kansas City, Missouri, to Houston. Only one of the top ten best cities was on the East or West Coast: Jacksonville, Florida.

In almost all cases, the top ten cities for renters had lower first-quarter 2011 vacancy rates than the 9.7 percent national average and had average monthly rents that were at least $100 cheaper than average mortgage payments. The states of Arizona, Texas, and Missouri each had two cities represented in the top ten, and the implication for ULI members is that these cities and others offer more potential for multifamily development opportunities, given the relative lack of product (based on lower-than-average vacancy rates) and the stronger fundamentals for renting versus buying.

Below are the top ten cities for renters based on the Forbes/Marcus & Millichap criteria:

Top Ten Cities for Renters:

Rank

Metro Area

Average Monthly Rent

Year-over-Year Change in Rent

1Q  Apt. Vacancy Rate

Rent Payment Compared to Mortgage Payment

1

Tucson, AZ

$604

1.5%

9.4%

$277 cheaper

2

Jacksonville, FL

$737

0.8%

10.2%

$104 cheaper

3

Phoenix, AZ

$685

1.5%

8.9%

$152 cheaper

4

Columbus, OH

$625

2.0%

8.6%

$170 cheaper

5

Kansas City, MO

$649

1.9%

7.5%

$213 cheaper

6

Las Vegas, NV

$742

-1.6%

8.6%

$94 cheaper

7

St. Louis, MO

$669

1.1%

7.3%

$117 cheaper

8

Houston, TX

$698

2.3%

10.2%

$288 cheaper

9

San Antonio, TX

$662

3.3%

8.0%

$24 cheaper

10

Charlotte, NC

$697

2.8%

7.5%

$665 cheaper

Source: Forbes magazine.