Fresh numbers from the fall of 2021 suggest that rents will increase at a rapid pace in the coming years. That’s a problem for Americans; many spend 30% or more of their income on rent. A decade-long slowdown in house building is coming to a close, which could help renters.
But the new developments in construction are generally for high-end and luxury apartment units. Experts say the market conditions are pushing people further away from their jobs and weighing on the economy writ large. Market indicators suggest that rent hikes are coming in 2022.
Average rents for a one-bedroom apartment in the booming suburbs of Phoenix, Arizona, have more than doubled year over year, according to data from Apartment Guide. Meanwhile, rents in Manhattan have reached fresh records as life returns to the cities, according to Zumper.
The problems aren’t confined to the usual suspects, however. Rents for single-family homes across the country jumped more than 9% on average in August 2021 from the prior year, according to a report from the analytics firm CoreLogic.
Rents are moving fastest in the buzzy enclaves across the South and West. For Maria Arredondo, a teacher based in Austin, Texas, a sudden rent hike of nearly $400 forced her to make a move. “If I had signed the lease … it would be taking a lot of my savings. And so I decided to move to a new building, losing about 150 square feet,” she told CNBC. Mark Zandi of Moody’s Analytics said the strains on the housing construction market were building well before the pandemic took hold in the states.
“There’s a lot of evidence that the lack of housing closer to where the demand is and urban cores is having a meaningful negative consequence on long-term economic growth.“ Generous monetary and fiscal policies have juiced demand for goods and services coming out of the pandemic. All that extra money sloshing around the economy is bubbling up into the rent. The fresh demand is giving investors a reason to jump into the market.
Experts say that’s boosting desperately needed supply. But there’s a catch: The homes being built are priced into the high end of the market. As a result, the evidence suggests that renters will be paying more for shelter this decade.