US median rent rises 0.5% as burdened tenants struggle to keep up.

US median rent rises 0.5% as burdened tenants struggle to keep up.

Rise in U.S. Rents: A Complex Landscape for Renters

Rent prices in the United States have seen a modest increase of just 0.5% in June compared to the previous year, after experiencing a decline in May. While this may seem like good news, a closer look reveals that the situation remains challenging for many renters. Cities like Cincinnati and Indianapolis continue to face rent increases of 5% or more. Additionally, much of the new rental construction is concentrated in a few select metropolitan areas, with many of the new units falling into the luxury apartment category.

According to rental listings company Rent, the median rent in the U.S. has risen to $2,029 in June 2023 from $1,629 in June 2019. This surge in rents has put a strain on tenants like Melissa Lombana, a high school teacher in Miramar, Florida. Over the past year, Lombana’s one-bedroom apartment rent has increased by 13% to $1,700, and a further 6% to $1,800 during lease renewal. With nearly half her monthly income going towards rent payments, Lombana falls into the category of “cost-burdened” households.

The demand for rental apartments skyrocketed during the COVID-19 pandemic as people sought more space or decided to relocate. This surge in demand led to a record number of apartment constructions, with nearly 1.1 million apartments currently under construction, a pace not seen since the 1970s. While increasing the supply of apartments can moderate rent increases over time, the majority of these new units will be concentrated in high job growth metropolitan areas, and a significant portion will fall into the luxury category.

Jay Lybik, the national director of multifamily analytics at CoStar, estimates that around 70% of the new rental inventory will be luxury apartments, with average national rents of $2,270. This leaves most tenants unlikely to see significant reductions in rent. Industry experts and analysts predict a period of rent flattening for the next 12 to 18 months, but not a significant decline that would resolve the housing shortage or affordability problem for renters across the country.

This surge in rents has created challenges for workers to keep up with inflation, despite solid wage gains in recent years. Between 1999 and 2022, U.S. rents increased by 135%, while income only grew by 77%. Although Realtor.com predicts an average decline of 0.9% in rents this year, many markets, especially those with strong job prospects, continue to experience rising rents. For example, the median rent in the New York metropolitan area climbed 4.7% in June to $2,899, and the Cincinnati and Indianapolis metro areas saw rent surges of 5.6% and 6.9%, respectively.

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While the current spike in apartment construction is a positive step, it alone is not enough to address the overall affordability issue for many Americans. Daryl Fairweather, chief economist at Redfin, explains that the growing millennial population requires sustained construction efforts over many years to build adequate housing. The bigger challenge lies in building more workforce housing that targets those with lower incomes. However, the cost of land, labor, and government approval processes often incentivize developers to focus on luxury apartments.

Expanding the supply of reasonably priced rentals would help alleviate the strain caused by the influx of high-priced apartment units. However, researchers at Harvard University’s Joint Center for Housing Studies emphasize that additional subsidies would be necessary to make housing affordable for households with the lowest incomes.

Despite the overall pullback in U.S. rents, renters like Joey Di Girolamo in Pembroke Pines, Florida, worry about potential rent increases in the coming years. Di Girolamo experienced a $600 increase in his previous townhome rental, prompting him to move to a new place. This year, his rent went up by $200, a nearly 10% jump. He expresses concern about what future rent hikes might look like.

In conclusion, the rise in U.S. rents presents a complex landscape for renters. While there has been a modest increase nationally, many renters continue to face significant rent hikes, particularly in certain cities. The surge in apartment construction is expected to bring some relief, but the majority of these new units cater to high-income earners. Building more affordable housing and providing additional subsidies are crucial steps to address the affordability problem faced by many Americans. Without further efforts and solutions, the challenges in the rental market are likely to persist for the foreseeable future.