Rental Market Roars Back and Workers Pay
For a whole host of pandemic-related reasons, rents dipped in 2020 as millions of Americans lost jobs, stayed home from college, left the cities, or arranged for aging parents to live with them.
But the economy has bounced back, and an additional 900,000 households entered the rental market in the first nine months last year. This unusually large surge in demand drove up rents and raised new concerns about housing affordability for the low- and middle-income workers who were already struggling to pay the rent.
The market for professionally managed apartments saw an unprecedented rent spike of 11 percent in the third quarter of 2021 compared with a year earlier. Prior to the pandemic, annual rent increases had averaged 2 percent to 5 percent. The biggest hikes are in pricier apartments and are being fueled by a strong job market and young adults in their 30s marrying or moving in with partners or friends.
“These higher-income renters aren’t just living in units that are higher end. They’re also competing for units that would be affordable to middle- and lower-income households,” said Alexander Hermann, senior research analyst with the Joint Center for Housing Studies at Harvard University.
“The affordability challenges they’re facing are real, and there’s plenty of reason to be concerned about what’s happening,” he said.
One positive development in a difficult rental market is that multifamily construction is at its highest level since the 1980s. However, it will take years for the new inventory to ease the pressures on apartment supplies and rents.
The low inventory of single-family houses for sale currently, combined with high house prices, are also driving up apartment demand by well-paid professionals. To satisfy the demand, hedge funds and other businesses are snapping up single- and multifamily homes and renovating them as rental properties. The high-end market is so hot that rents in this segment rose 14 percent last year, according to the Harvard housing center’s new report.
At the bottom of the income ladder, however, 23 percent of households with less than $25,000 in income are behind on rent, as are 15 percent of households earning between $25,000 and $50,000. These renters are disproportionately people of color, who felt the brunt of the massive job losses when businesses shut down early in the pandemic.
It’s less clear what all the COVID-era reshuffling has done to renters’ cost burdens, which had been stable but stubbornly high in the runup to the pandemic. In 2011, the share of renters devoting at least a third of their incomes to rent peaked at 51 percent. It had fallen to 46 percent by 2019, the latest year for which data are available.
Since then, low-wage workers’ pay has increased, but many other developments – from soaring rents to accelerating general inflation – are pointing in the wrong direction.
“The affordability problem is a longstanding problem,” Hermann said. “The pandemic is only exacerbating issues that were already there.”
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