Gas prices have doubled, eggs are priced four times higher than years before, and empty shelves are a common sight in grocery stores across the country. Moving products from point A to point B is much pricier than it used to be, and while we don’t like it, increased transportation costs can result in higher price tags at the store.
On the other hand, your home doesn’t need to be trucked around town, and it’s probably not undergoing big renovations, so why is rent increasing so much? On average, monthly rent has increased by roughly 14%—and over 30% in select cities—and it continues to grow.,
So why is rent so expensive? We’re taking a look.
#1 The Supply Is Limited
In times gone by, you might have shopped around, viewed multiple homes, and decided on the winner after a week or so. However, if you’re looking for a new place to rent today, chances are you’ll need to be prepared to submit an application as soon as you view a good match. Whether you’re renting in a big city like San Francisco or New York City or in the small towns and suburbs, higher rent is a cause of limited supply.
Across the country, vacancy rates are low, at 5.6% in the second quarter of 2022. Compare this to 7.0% in the first quarter of 2019 (right before the pandemic hit the United States) and the century record high of 11.1% as of late 2009. That said, there are fewer rental homes available in relation to how many people need them.
This is due in large part to a stop-and-slowdown of new home construction over the past years. Construction is not keeping up with demand because of:
- Supply chain limits and delays on construction materials
- Quarantine home improvement competition/demand for construction materials
- Labor costs increase as one of the effects of inflation and a smaller pool of unemployed job seekers
- Investment delays in response to pandemic price and eviction limits
According to the National Apartment Association, 4.6 million new apartments would need to be built, and over 10 million renovated, by 2030 to meet demand.
Plus, outside of rental housing availability and construction, the inventory of available starter homes is at a 50-year low, keeping some tenants in the rental market instead of transitioning to home buying.
#2 Demand Is High
The flip side of limited supply is high demand contributing to rent increase. Why are there so many people in the market for a rental right now?
According to census data, the number of households in the country grew by 1.48 million last year. This reflects a high number of larger households splitting into smaller ones, including:
- Couples divorcing or splitting up
- Renters who’ve switched to remote work and want to live without a roommate
- Adults who moved home during the pandemic temporarily now looking for their own place
Additionally, the current pool of renters entering the market includes:
- Young adults leaving home for the first time
- First-time home buyers blocked by high property values and interest rates
- Homeowners who sold their homes that are renting before buying again
- Workers migrating back to cities as remote work switches to in-office work
- Remote workers heading to destination cities
#3 Rising Inflation
Which came first—the chicken or the egg? Rising rent costs are both a driver of high inflation and a result of it. As more people are forced to move due to rent price hikes, it leads to a spike in the number of new leases. This impacts the U.S. consumer price index, which is one measure of the rate of inflation.
At the same time, skyrocketing oil prices that raise the cost to transport goods and workers creates a ripple effect across nearly every product and service (including groceries like chickens and eggs), as well as costs that landlords pay to maintain and repair properties.
For instance, a landscaper faced with double the cost in gas to transport and run machinery coupled with a sharp rise in pay for a limited employee pool will need to up their price list to cover those costs, and roof repair on an apartment building will come with a much higher price tag than a few years ago. When it comes to how to deal with inflation, it’s one of those things that feels like figuring out as you go.
#4 The Rise in House Prices
The relationship between residential real estate and rental properties is tighter than ever. Last year, home prices rose an average of 17%, making it the highest growth year in recorded history.
Many prospective home buyers reacted by staying in the rental market, either waiting for home prices to level off or to save more down payment money. But in the meantime, mortgage interest rates spiked unexpectedly this year, rising to an average of 5.3% for a fixed-rate 30-year mortgage at the end of July 2022 compared to 2.8% at the same time last year.
While housing prices have begun to stabilize, the change in interest rate can equal hundreds of dollars monthly and thousands over the life of a loan, keeping would-be buyers paused in rentals for longer. And unless new construction catches up to demand, short-term renting may turn to long-term tenancy.
#5 The End of the Quarantine-Related Housing Protections
The coronavirus pandemic kicked off in the United States with frequent local quarantines in 2019, some of them extending into 2020. Keeping people at home meant keeping people in their homes, so federal, state, and local regulations cropped up across the country to prevent or delay evictions and foreclosures. The Tenant Protection Act was one that kept tenants in the rental property throughout the pandemic.
Although there are still some city and county provisions in place, the last of the statewide eviction bans ended in July 2022.
In this current eviction bump—coinciding with the usual summertime spike in annual evictions—many landlords are seeking to regain lost revenue and damages with significant increases to current market value rent.
#6 Competition From Wealthier Tenants
It sounds ridiculous to say rent prices are rising because some tenants have too much money, but one factor in rising rent is a new influx of higher-income tenants who are competing for the same rental homes and able to pay more in monthly housing costs.
This is due in large part to workplace mobility. Many businesses, including the lucrative tech and finance industries, are allowing white-collar workers to continue working remotely and hiring from a national—or international—pool of remote workers.
Executives and middle managers who previously had to live adjacent to cities with high costs of living can take their salaries on the road.
Higher-income singles and couples may be used to rental living and simply move to places where their rental dollar buys more. And executives with families moving to greener pastures may rent for a short term to get the lay of the land before buying a new house.
#7 Rising Rents Attract Investors
If there’s money to be made, investors will find it. Real estate investors are coming from both inside and outside the United States to buy up rental properties that can be expected to support rent hikes—and maximizing rental income is their primary goal.
Whether you’re renting an apartment in a large multi-unit building or a single-family home, a recent change in landlord management may be due to an investor buyout. In 2021, investors accounted for 24% of single-family house sales nationwide, with up to a third of them in hot markets like Georgia.
Is this necessarily bad? Not always. Investors will generally be prepared to pay the upkeep and maintenance costs that will maximize their rental value, but it also may equal less negotiation power if you’re used to sitting down with a mom-and-pop landlord pair who live down the street and aren’t paying as much attention to market value rent pricing.
How Can You Reduce Your Rent Costs?
While a rent hike feels like the cherry on top of pandemic-end spikes, The good news is that you still have options and choices to help you control your monthly housing budget. If your rent is rising beyond what your budget can handle, here are some steps to consider:
- Take a hard look at wants versus needs related to housing space and features
- Negotiate with your landlord to keep you as a trustworthy tenant with a smaller increase
- Suggest trade-offs like giving up a parking space for a lower monthly increase
- Switch to a coliving home with shared common spaces
- Add or become a roommate
- Do the math on the cost of living in your location if you can move without losing income
- Check to see if there are government programs offering rent assistance in your area
Ready to Learn More About Coliving?
Let’s face it—many of us don’t always need all the space we have. If you’re renting a house or apartment with rooms you only use to entertain guests, it’s a little like hanging on to that set of china that only comes out for one holiday per year—except with rent prices increasing, it’s a lot more expensive.
Coliving homes offer more balance between the private sanctuary you need and the spaces that are more practical to share with others. For some, this includes a high-end kitchen for occasional gourmet cooking, complete with cleaning services. For others, it’s beautifully designed indoor and outdoor settings that can host guests and encourage connections with fellow dwellers.
If you’re looking for a community-based living space in one of our host cities, visit Common today and take a virtual tour of our homes.
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Federal Reserve Economic Data (FRED). Rental Vacancy Rate in the United States. https://fred.stlouisfed.org/series/RRVRUSQ156N
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The Washington Post. Four reasons your rent is going up. https://www.washingtonpost.com/business/2022/02/10/rent-rising-inflation-housing/
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