According to Apartment List, the US housing and apartment rents decreased by 1.4% in January 2021, a much smaller decline than was predicted. Despite the decline, rents are still higher than expected. The pandemic’s effects are already showing up in rental prices. Read on to find out what’s driving up rents.
Demand for single-family rental homes
In the United States, demand for single-family rental homes is increasing as the Baby Boomer generation ages. This cohort is estimated to increase from 65.7 million in 2010 to 70.2 million in 2030, outpacing the population growth of the country over the next five years. This demographic has traditionally driven single-family rent growth.
In response to the demand for rental housing, several institutional landlords have recently shifted their focus to rental properties. According to Redfin, institutional landlords have bought $77 billion worth of properties in the past six months. Invitation Homes recently announced a $1 billion joint venture with Rockpoint to renovate and lease single-family rental homes. While this trend is promising, some in the real estate industry are predicting adverse consequences.
In the United States, demand for single-family rental homes has risen dramatically in the past five years. The lack of supply has driven prices of single-family rental homes to historic highs. This is preventing many aspiring families from becoming homeowners. However, the demand for SFRs has improved significantly since the financial crisis. Since the start of the Great Recession, the occupancy rate of SFRs has increased 500 basis points and is projected to reach 95% by 2021.
Rise in rent
The rise in housing and apartment rent in the USA has been fueled by the lack of supply and high demand in some areas. In July, the average rent in the United States was $1,717, up 12.6% from the previous year. In other cities, the rent has gone up even faster.
Across the country, rents rose in every state, with only six cities experiencing less growth than in the prior month. Rents rose in Orlando, Tampa, San Diego, and Las Vegas, among other major cities. However, in the state of Florida, rent growth was slightly lower than the national average. In cities like Pittsburgh, Detroit, and Minneapolis, annual rent increases were just 5.5%, according to the latest data.
During the recession, people may be willing to pay lower apartment rents. And, because housing is still expensive, many prospective home buyers will likely stay in the rental pool for some time. However, rising mortgage rates and qualifying requirements will dampen their hopes for homeownership. Despite this, demand for apartments is expected to remain strong for several years.
Rising rents in major metros
Rising rents in major metros of the United States are becoming an increasingly urgent concern. A recent report shows that the price of rental housing increased in 79 of the 100 largest cities. But the pace of rent growth slowed down in 68 of these metro areas. Moreover, rent growth in Florida was still elevated (15 percent) despite the slowdown in other parts of the country. Only a few major metros like San Diego and Los Angeles experienced decreases in rent.
The Sun Belt and the Gulf Coast have been particularly hard-hit by the rising cost of rent. In the last year, rents in those cities rose by 22.5%, and in Miami, rent increased by 55% between February 2021 and February 2022.
Impact of pandemic on rents
The impact of the pandemic on apartment rents in the United States was severe, especially for renter households. Approximately a quarter of renter households reported not being able to make their rent during the pandemic. As a result, the housing affordability crisis has been exacerbated.
The pandemic impacted different populations differently. For instance, higher-wage workers were able to work from home, while those with lower incomes had to lose their jobs or suffer income reductions. In addition, rent growth varied by price tier and property type.
The impact of the pandemic on the rental market is still being fully understood. However, a few trends are clear. While a majority of renters requested a postponement in their rent, nearly a third could not afford to pay their rent in full. Because millions of people lost their jobs, many struggled to meet their basic expenses. Fortunately, the government stimulus check provided many with a lifeline during the pandemic.
Impact of rent control
Rent control, or rent-control laws, are laws that limit the increase in housing rents. Economists argue that strict rent controls limit housing supply and discourage developers from building more units. They study the supply and demand of housing and apartment rents and find that a lack of housing supply stifles demand. The United States is severely short of housing, according to Freddie Mac, and more housing should lead to lower rents, they say.
In 1979, San Francisco passed legislation imposing rent control on all multifamily buildings with five or more units. This law regulated rent increases tied to CPI, but did not limit prices between tenants. The legislation also exempted new construction because legislators did not want to discourage new development. Additionally, small multi-family buildings were exempted because they were considered “mom and pop” ventures.