Alaska rents just saw their highest increase in over a decade

Rents in Alaska jumped last year at their highest rate in more than a decade. By far.

The monthly price in Alaska for a two-bedroom apartment rose 7% on average, economists reported in the September issue of Alaska Economic Trends. That’s nearly double the previous high in recent history, 4% in 2012, the report says.

The data, based on an annual survey of landlords in March, comes as cities across the state deal with rising housing costs and a lack of dwellings. In Anchorage, leaders are engaged in tense discussions over homelessness and housing affordability. The Assembly over the last year has changed some rules to encourage new construction, such as expanding areas where mother-in-law apartments can be built. And some Assembly members have proposed a controversial overhaul of zoning rules to spur more residential construction.

Renters in Anchorage paid an average of $1,532 monthly for a two-bedroom apartment, utilities included, a 5% jump from the year before, the report says. Those rent prices were the second-highest of the Alaska communities surveyed in the report.

Bethel posted the highest rent of the communities surveyed at $1,600, after the Southwest Alaska town of 6,000 was added this year to the list of municipal areas studied in the report. Unlike 10 other areas surveyed, adjustments for utilities were not included in the Bethel rent because that data wasn’t available, the report said.

Fairbanks North Star Borough residents paid an average of $1,486 monthly, a 9% increase over the year, utilities included.

Rents were relatively lower in the Matanuska-Susitna Borough, at $1,189, in the Kenai Peninsula Borough, at $1,095, and the Wrangell-Petersburg area, at $1,055. But rents also rose rapidly in those locations, the report says.

Rents in Alaska and nationally rose rapidly in 2022, as landlords passed rising costs onto renters amid soaring inflation. Costs for maintenance, property taxes, utilities and other services pinched landlord’s budgets, the report says.

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Nolan Klouda, executive director of the University of Alaska Center for Economic Development, said the sharp jump in rental rates is problematic for the broader economy.

He said affordable rental rates are important for attracting workers to Alaska, he said. Those workers are needed to address a labor shortage that many say is hurting businesses.

“Not everyone moves to a new state and buys a house, so those folks who might work in Alaska are more shut out of the market and likely to move elsewhere,” he said.

Vacancy rates for rental units have been low in recent years, said Rob Kreiger, a report author and economist with the Alaska Department of Labor and Workforce Development, in an interview on Thursday. With fewer rental units available, landlords face less competition among themselves. And renters face more competition from other renters, he said.

Other factors pressuring rents include a slowing rate of outmigration, or Alaskans leaving the state, the report says.

Also, residential construction has fallen to record lows in recent years. And home prices are rising, partly due to higher borrowing costs for mortgages, which reduces housing affordability.

Daniel Delfino, an economist and director of planning at Alaska Housing Finance Corp., a state agency that participates in the annual survey, said the higher rents can be a problem for lower-income Alaskans.

“People are paying more, and there are fewer places to rent,” he said. “So people who were already struggling and on the periphery, the hill they’re trying to climb just got a lot steeper.”

The report says that in “2020 and 2021, Alaska recorded its two lowest years of new building activity since at least 2003, including lows for new single-family homes in 2020 and for multi-family units in 2021.”

A survey of mortgage lenders in 2022 showed that the number of homes purchased with a typical mortgage, a 30-year loan with fixed rates, fell to the lowest level since 1992, the report says.

Vacation rentals such as Airbnb units appear to be growing, though data on the subject is limited, another factor that could be keeping long-term rentals off the market, the report said.

Factors indicate that rents could continue to rise, Kreiger said. National data shows the amount of first-time buyers reached its lowest point on record last year, at 26%. And housing affordability in Alaska is the lowest it’s been in many years, Kreiger said.

“The fact that home ownership is becoming difficult for first-time buyers will likely continue to keep vacancies low,” contributing to higher rents, he said.

The problem of high rents and the housing shortage have been building for years, said Jeannette Lee, Alaska research director for nonpartisan think tank Sightline Institute. Her focus includes housing issues in Anchorage.

Lee said some of the factors contributing to the higher rental costs are outside the city’s control, such as higher mortgage rates.

But municipal leaders can take steps such as adjusting zoning requirements to encourage more residential construction, she said, and providing tax incentives to spur development.

“We’ve had decades of using land inefficiently and not just in Anchorage,” she said. “Our zoning codes encouraged the most expensive type of housing that uses the most land and takes up the most square footage.”

“That’s fine when you have a ton of land to work with, but then when you run out of land to accommodate that kind of housing, you run into a supply issue,” she said.