One of the far-ranging effects of a supply shortage for would-be homebuyers in the United States is that more and more people who are priced out of home ownership are left instead to rent.
Even before the pandemic, large cities in the U.S. had been anticipating growth in rental demand by building new multifamily properties that serve a mix of students and others who want more flexible living arrangements. Many of these market-rate projects figure to be welcome additions to their neighborhoods, but they also fail to address the growing need for affordable apartments at a time when expiring vouchers and tax credits threaten the existing stock of such rental properties in communities that rely on them.
This set of factors acts as a backdrop to the sharp rebound in rent prices for markets across the country over the course of 2021. And in the years ahead, the tide of younger adults searching for apartments will throw another wrench into the market.
The national median rent hit $1,302 in September, marking a 15% increase over the previous year, when rents had plummeted during the initial phase of the pandemic.
Since January of this year, the national median rent has grown by 16.4%, an even faster pace. During a typical year prior to the pandemic, the national median rent would normally rise somewhere between 3-4%.
“Although the pandemic created some softness in the rental market last year, 2021 has brought the fastest rent growth we have on record in our data,” analysts at Apartment List said of the current trend. “Nationally, and in nearly all individual cities across the country, rent growth in 2021 has exceeded average growth rates from pre-pandemic years.”
The most recent data from Apartment List actually found that October marked the lowest month-over-month rental growth rate since February. In fact, 22 of the nation’s 100 largest cities saw rents fall in October.
There are signs of a slowdown — much of it due to fall seasonality — but on the whole rents are still on a growth trajectory.
Even if rent growth is finally cooling, this year’s rent boom has already added significant housing affordability pressure for America’s renters,” the Apartment List analysts concluded.
The demographic factors influencing competition in the U.S. rental market are likely to intensify in the coming years. The nation’s home supply will need to increase significantly enough that priced-out Millennials are able, willing and ready to spring for home ownership.
“You have aging millennials who are creating families who should be moving from rental situations into ownership but, because of the lack of housing supply, that has been stopped in a lot of instances,” said Doug Ressler, manager of business intelligence at Yardi-Matrix, in an interview with Voice of America “And so, what you see is the aging millennial population continues to rent.”
But Ressler also stressed that it’s not just Millennials putting pressure on the rental market. People under 24 years old in Gen Z are now also looking for their first apartments in growing numbers, which means they’ll be competing with their older peers for places to live in many cities and surrounding suburbs.
Older Americans, too, are looking for apartments.
“They’ve lived in a home for so long and they want to be able to reduce their expenses on a fixed income,” Ressler said. “They want to live in a social cohort, like a retirement community, and things like that where it’s much more socially amenable to them.”
Separating how much these rental market dynamics are pandemic-related and how much they are the product of larger demographic force is something that will only become clear as the U.S. continues to emerge from COVID-19. While the pandemic may have been the catalyst for many of these changes, it appears that certain facets of the housing dilemma in the United States are becoming their own concerns in a larger set of economic challenges for people of all ages and backgrounds.
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