Renters faced with difficult choices as prices skyrocket to all-time highs

WASHINGTON (TND) — Securing a place to live in the U.S. is growing more expensive for people looking to rent as the housing market cools following a pandemic-era boom that has also sent home prices to new highs.

The median asking price for rent in the U.S. crossed $2,000 a month for the first time ever in May with little room for relief expected in the near future. Prices were 15% higher in 2022 than the year prior, outpacing inflation that is running near 40-year highs.

Like the housing market, the root of the problem for renters is an extremely limited supply, which drives up competition for space as more units are occupied and send asking prices for rent soaring. Freddie Mac estimates the U.S. has a shortage of roughly 4 million units.

After the Federal Reserve started raising interest rates to bring down inflation, more people were priced out of the market and needed to find or renew a lease to rent.

The spike is especially high in areas that also saw a boom of people looking to move to during the pandemic like Austin, Texas, Nashville, Tenn. and Seattle. According to Redfin, rents increased nearly 50% year-over-year in Austin and over 30% in Nashville and Seattle.

More people are opting to live alone, and rising mortgage-interest rates are forcing would-be homebuyers to keep renting,” said Taylor Marr, Redfin deputy chief economist. “These are among the demand-side pressures keeping rents sky-high. While renting has become more expensive, it is now more attractive than buying for many Americans this year as mortgage payments have surpassed rents on many homes. Although we expect rent-price growth to continue to slow in the coming months, it will likely remain high, causing ongoing affordability issues for renters.”

Outside of supply pinches, other factors are further putting the squeeze on people looking for a place to rent.

“Demographic trends just overall been very favorable for housing for the unbuilt, the for sale and the rental side of the market,” said Alexander Hermannn, a senior research analyst at Harvard’s Joint Center for Housing Studies. “So, the large millennial cohort continues to age into their 30s and early 40s, and those are prime years for household formation, and they'll start to be prime years for home buying but also important years for apartment living, so demographics underlying housing demand have been favorable.”

The rising cost of rent is felt by everyone with a lease but is especially painful for people toward the bottom and middle of the income spectrum. Renters on average spend more of their incomes on housing than homeowners and are also dealing with higher prices at the grocery store and gas pump.

With little room to navigate, it is forcing people to make difficult decisions on whether to find a new place to live, cut back on other essential spending or move to an entirely new area.

“There's no guarantee that if you find (another unit) that it's going to be more affordable than the one that you're forced to leave,” Hermann said. “All your options are in many cases just not great, right? That speaks to the kinds of trade-offs that renters in this market have to stare down basically every time their lease comes up for renewal at this point.”

Rebuilding the nation’s housing supply has been an uphill battle for homebuilders for both single- and multi-family units like apartment buildings. The coronavirus pandemic made it more expensive and difficult for builders to finish projects as supply chain snags sent costs up and delayed the completion of projects. A nationwide labor shortage has also presented developers with a lack of construction workers to get projects going and completed.

A monthly report from the U.S. Department of Housing and Urban Development and Census Bureau found new single-family housing starts decreased 8.1% in June on an annualized pace. But multifamily starts, which includes apartments and condos, increased 10.3%.

“While the multifamily market remains strong on solid rental housing demand, the softening of single-family construction data should send a strong signal to the Federal Reserve that tighter financial conditions are producing a housing downturn,” said National Association of Homebuilders chief economist Robert Dietz. “Price growth will slow significantly this year, but a housing deficit relative to demographic need will persist through this ongoing cyclical downturn.”

Some relief in pricing is expected later this year for renters and more could come as current building projects are completed and more units go on the market.

The White House is facing pressure from a coalition of tenant, community and legal organizations to take executive action to address the rental inflation.

“The President must act immediately to regulate rents, as part of the Administration’s efforts to curb inflation, and as a critical foundation for long term protections to correct the imbalance of power between tenants and their landlords,” the coalition, People’s Action Homes Guarantee, wrote in a memo to the Biden administration.

In the memo, Homes Guarantee asks President Joe Biden to declare a state of emergency on housing and issue an executive order to use government authority to protect tenants from huge rent hikes, evictions and denial of lease renewal. It also asks for a cabinet-level task force to find long-term solutions to regulate rents and tenant rights.

The White House unveiled a plan to address the nation’s housing affordability issues earlier this year, though it will do little to provide short-term relief. Part of the plan is to help with the supply shortage through various government initiatives and grants, but those programs could face obstacles in the form of local zoning laws and neighborhoods resistant to change.

“Any strategy to bring down prices must include housing and affordability. Landlords and housing corporations are telling their investors they’re ready to jack up rents as much as possible. If our policy fixes for inflation don’t target the housing market, we risk failing to meet one of the most urgent needs of millions across the country,” Groundwork Collaborative director of policy and research Mike Mitchell said.