Reasons Behind Rising Rent In The U.S.
Rent in America is getting more expensive no matter where you live. rent growth is accelerated coast to coast in big cities, rural areas. East-West, South-North is across the entire economy. The areas where we are seeing the strongest rent growth are in places like Austin, Texas. Yeah, so my name is Maria and I live in Austin, Texas.
During the pandemic, a lot of people began to leave. And actually, the rent dropped that year. By $100. I am due to renew my rent, and there was a spike of $400. Making matters worse, few of the new homes and construction are affordable, rental demand continues to be extremely strong.
And the rental units that are being built are the more expensive ones, that is the higher end ones. Meanwhile, workers’ pay isn’t increasing enough to match the new rent. We had wage suppression for 40 years. And then we have the period now where wages are growing, especially at the low end.
And so the question is, how long will that continue? Experts say the rent increases will have an impact on the economy. A lot of the monthly expense for the typical household is money that’s going toward the rent, or to the upkeep of the house. So it is a very important part of all consumer expenditures.
High Rent and Competitive Market in the U.S
In the most competitive markets. Rents are creeping toward record highs, renters in smaller markets are feeling the squeeze too. For example, one-bedroom rentals in Gilbert, Arizona spiked over 116% In the past year. Meanwhile, rent for a single-family home is growing at its fastest pace since 2005.
According to CoreLogic. So how did we get here? One answer is the bounce back from the pandemic. You saw tech companies, major firms moving to smaller cities, cities like Pittsburgh, Austin, San Antonio, Charlotte, these are cities that really started booming because workers had more flexibility.
And when the city starts booming, of course, the rents go up because it’s a supply and demand issue. But the story goes back further than that, all the way back to the Great Recession. President Obama, you listening?
This has been building really since the end of the financial crisis back a little over a decade ago, a lot of communities have made it more difficult to build more homes closer to the urban cores, building materials, particularly lumber has been in short supply. That’s been a problem of labour.
Rising rents take up a growing share of Americans’ income
You know, a lot of people left the construction trades in the housing bust back a decade ago. And because of changes in foreign immigration laws, we have a lot fewer foreign immigrants coming into the country, many of those folks would work in the construction trades.
Also, a lot of smaller builders, rely on loans from banks. And since the financial crisis, banks, particularly smaller banks, midsize banks, have been unable to because of regulatory changes and other reasons unable to provide enough loans. So you know, there’s a melange of things going on here.
After the financial crash of 2008. house building stalled by the end of the 10s. Renters had fewer options, especially in real estate hotspots pre-Covid, we saw a huge rush to urban centres, millennials love to live in cities longer, they were actually living there longer than the previous generations their age had because they weren’t able to get out and afford to buy homes because home prices were so high.
So you had so much demand in the cities, then the pandemic hit. So if you look at some of the high rise apartment buildings in the really dense central business districts of the big cities spreads were actually declining in the first 12 months of the pandemic. But smaller cities like Phoenix and Austin received more of those remote workers.
The Rent Issues Faced by people in U.S.
That’s a price upward for people like Maria right now, I would say for a studio is probably $2,000. This place it’s a one-bedroom was originally set at 1700.
When I first moved in, Maria is a teacher and needs to commute to work every day, she and many other Americans don’t have the luxury to move further away from work to save cash that’s creating wider issues in the economy.
There’s a lot of evidence that the lack of housing closer to where the demand is and urban cores are having a meaningful negative consequence on long term economic growth so we can figure out a way to change zoning rules and laws and get the lumber and land and labour that we need are able to build closer where the jobs are, you know, our economy will be able to grow more quickly more strongly in the longer run.
renters in the traditionally cheaper suburbs are feeling the burden too. economists say that finding any home to rent right now is uniquely difficult. Because the vacancy rates are really so low. It’s the lowest we’ve seen in the generation. Coming out of the pandemic, it’s likely for rents to keep rising.
The Builders Rent Ramping in the U.S.
Fortunately, builders are ramping up their building, they can make a lot of money, you know, with rents this high and house prices this high. So they have a lot of incentive to put up more homes. And that’s happening slowly but surely we are seeing more homes put up. So that’s a good sign. And we’ve seen an increase in single-family housing starts.
That’s really important because that’s the preferred housing structure during the pandemic, so having investors come in buying homes might maybe put a little upward pressure on home prices. Sure, maybe it does. But it does increase the stock of single-family rental homes available in the market and should help to moderate rent growth.
And in the cities, some realtors are weighing whether to convert their less busy office districts into residential neighbourhoods. The idea is to say that there are some empty buildings, you know, brick and mortars already established, but maybe one can repurpose them into residential units.
For the short term, renters are dealing with the market. If I had signed the lease I would have it would be taking a lot of my savings and so I decided to move to a new building. I’m losing about 150 square feet. These hikes are hitting us, citizens, at an inopportune time. over decades, wages for most workers have stagnated.
Rent is about to go up again in the U.S.
The wages and benefits of a typical worker were suppressed in the period. For decades after 1979 growth was very slow. There was growing inequality that worked against the middle; in effect against anybody in the bottom 90%. In 2019, Oregon became the first state to impose statewide rent control.
The cap increases at about 7%. cities like New York, San Francisco and Washington DC. Also, limit rent increases, these policies have some benefits. One study found that renters were about 20% more likely to stay in their homes with rent control. Other economists think that rent control does more harm than good.
So what history has shown is that by putting a rent control, yes, its benefit temporarily for people to pay lower rent, but that deters incentive to build more homes or provide money for maintenance. So all the housing stock steadily deteriorates over time, and one does not want to see that.
So we want to encourage more production, the answer to rising rents may be in the job market. both Congress and the Fed have pumped stimulus into the economy, it should eventually help some workers earn higher wages, there’s been a huge increase in the demand for goods and services.
High Rent and the Low Unemployment in the U.S.
So we’re gonna see a period of sustained low unemployment. This has always led to faster wage growth for those in the middle and the bottom. The other related question is, will we see the structural changes, then I’ll build us into the economy rather than be an episode of a period of low unemployment.
And I think that will require improving labour standards. So you know, putting in the $15 minimum wage and rebuilding collective bargaining, I think that will mean paying attention to maintaining low unemployment, which means that the answer to rising rents might be getting yourself a raise, or finding roommates.
They’re not building enough affordable housing right now because for builders, the cost of construction is so high, due to a high cost for land labour materials shortages, for materials, shortages of labour, that they can’t build affordable housing.
You know, it took us 10 years to get into this predicament. It’s not going to be solved next year or the year after it’s, it’s gonna be 10 years before we solve this problem.