via DCNF
Rent prices have exploded since the end of the COVID-19 pandemic and are unlikely to moderate, with shortages in supply and price stickiness leading to current increases, according to experts who spoke to the Daily Caller News Foundation.
The average price of rent for Americans increased 6.1% year-over-year in January, far higher than the rate of general inflation at 3.1% in that same time frame, according to the Federal Reserve Bank of St. Louis (FRED). The current sustained increase in the average cost of rent for Americans stems from a lack of supply of apartments that people can afford and the stickiness of long-term leases that have spread out the increase longer than other inflation spikes, leaving it uncertain for how long rent cost gains will continue, experts told the DCNF.
“Rent prices continue to increase greater than the overall inflation rate,” Joel Griffith, a research fellow in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation, told the DCNF. “Although the rate of year-over-year change slowed from the 8.8% peak in April of last year, families are still feeling squeezed as rent increases faster than wage growth and inflation. The last time annual rate increases were this high for so long was in the stretch from 1977-1983. In other words, those under the age of 55 have never experienced such a rent squeeze.”
Renting unaffordability has hit an all-time high, resulting in 22.4 million households spending more than 30% of their income on rent and utilities, which is up by 2 million in just three years. The number of low-rent units, which are those rented for under $600 a month when tied to inflation, has fallen by 2.1 million since 2012, totaling just 7.2 million units in 2022.
There was a 36-year high in the number of new apartments built in 2023, totaling 440,000, with another 670,000 expected to be completed and on the market in 2024, after a number of new developments were started due to high demand following in 2021 and 2022, according to Realpage. Despite the new construction, most developments targeted upper-class customers, resulting in lower prices for high-end units but higher prices for standard units and failing to alleviate apartment shortages for average Americans, according to Axios.
“It’s very difficult to predict the trajectory of rents in the future,” Peter Earle, economist at the American Institute for Economic Research, told the DCNF. “One of the lessons that the Fed is taking away from the present spike in inflation is that those prices are much stickier than they were assumed to be. They have been slow to react to the contractionary policy measures undertaken by the Fed for several reasons. There’s no real substituting other products or services for rent, so relative price changes don’t come into play. Additionally, there are usually natural and artificial barriers on the amount of housing available in a given city or region, which puts a floor under prices as well.”