According to Apartment Guide’s Rent Report 2020 released on Monday, effects from the longstanding for-sale inventory shortage are now seeping into the rental market as renters are staying in place longer — thereby driving down vacancy rates and pushing up monthly rent.
In 2019, the national median rent for studio (+0.4 percent), one-bedroom (+3.0 percent), two-bedroom (+1.7 percent), and three-bedroom (+1.2 percent) units all increased. Although one-bedroom units experienced the largest year-over-year rent increase, studio apartments are still, on average, more expensive ($1,617.92 vs $1,586.84).
Median rents for various unit types have risen in all four regions, but the West was the only region to experience an increase across the board for studio (+3.4 percent), one-bedroom (+3.5 percent), two-bedroom (1.2 percent), and three-bedroom (+4.7 percent) units.
Although additional factors including generational renting trends, apartment construction starts, and ebbs and flows in the overall cost of living impact rental prices, Apartment Guide said the for-sale inventory shortage plays a significant role in rent growth.
“From 2010 – 2018, annual construction nearly equaled year-to-year household growth; 8.35 million new households were formed, and 8.35 million new housing units were built, including housing completions and manufactured home placements,” read the report. “This equates to a pace of 100 housing units added for every 100 households — essentially a severe shortage in new housing, since the industry’s typical build rate since 1970 has been 130 new units for every 100 households formed.”
“Although this ratio is a rule-of-thumb for the housing industry and does not explain every trend seen, there’s still reason to speculate that the lower-than-usual build rate for new housing could inherently be placing pressure on the rental market,” it added.
As proof, Apartment Guide pointed to rent trends in the West, where strict zoning laws have slowed the building pace and exacerbated affordability and homelessness crises. On the other hand, the one-bedroom median rent in the East and Midwest have been on the decline, e.g. New York (-6.0 percent) and St. Louis (-3.3 percent), as new housing construction ramped up to exceed current demand.
However, that trend has yet to spread to the rest of the country, where vacancy rates are at historic lows due to a lack of affordable for-sale or for-rent housing.
“Early indications from an upcoming study of the rentals market reveal that rental markets across the U.S. are extremely tight,” Apartment Guide explained. “Vacancy rates sit at decades-long lows, according to the organization, and the number of cost-burdened renters is on the rise, meaning that people are finding it harder to afford rent.”
This catch-22 is impacting renter trends and sentiments, as 76 percent of renters live with one or multiple roommates to afford rent. Forty-three percent of renters believe their rent is too high, and 16 percent say utility costs are getting harder to keep up with.
Less than half of renters (42 percent) are happy with their current living situation, with renters making $50,000 to $100,000 expressing the most displeasure with their rent (53 percent) and living conditions (65 percent). These renters also likely pay more in rent, with the majority of respondents paying $1,100 to $2,000 (62 percent) or more than $2,000 (67 percent).
Despite rising costs in the for-sale and for-rent market, 75 percent of renters would like to buy, although 68 percent said their next move will likely be to another for-rent unit.