Why the cost to rent is soaring

The cost to rent an apartment is increasing at an unprecedented rate. Why is this? And will the unfortunate trend end soon?

Published in: Real Estate, Economy & Finance

Why the cost to rent is soaring from John Maxfield

Transcript

• 1. Why the Cost of Rent Is Soaring
• 2. If it seems like your monthly rent check is getting bigger at a faster rate each year, it’s not your imagination.
• 3. According to new data, the average cost to rent an apartment is growing at nearly three times the rate of inflation!
• 4. 4% 1.3% -3% -2% -1% 0% 1% 2% 3% 4% 5% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Rent Inflation Yearly Increase in Average Monthly Rent vs. Inflation
• 5. Why is this happening?
• 6. Since the financial crisis, the percent of Americans who own their homes has fallen dramatically.
• 7. In 2004, 69% of households owned the home they lived in. But by 2014, this had fallen to 64%.
• 8. 69.2% 67.2% 64.4% 62% 64% 66% 68% 70% 72% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 U.S. Home Ownership Rate Since 2004
• 9. This implies that, over the past decade, an estimated 5.9 million households that would have otherwise owned a home have chosen to rent instead.
• 10. To make up for this, builders of multifamily housing units have tried to keep up with the increased demand.
• 11. This is why multifamily building starts are at a historic high.
• 12. 0 50 100 150 200 250 300 350 400 2000 2002 2004 2006 2008 2010 2012 2014 Multifamily Building Starts Thousands of units, seasonally adjusted annual rate
• 13. But because builders haven’t been able to increase supply fast enough, apartment vacancy rates have dropped to the lowest point in more than a decade.
• 14. In 2009, 8% of apartment units were vacant. Today, only 4.2% are empty.
• 15. 6.7% 8.0% 4.2% 0% 2% 4% 6% 8% 10% 2004 2006 2008 2010 2012 2014 Apartment Vacancy Rate Since 2004
• 16. The net result is that landlords have little incentive to negotiate on price.
• 17. In fact, just the opposite is true: They have every incentive to increase rent.
• 18. And that is exactly what they’ve been doing.
• 19. In 2007, the average rent across the country was just over $1,000. Today, it’s almost $1,200. That’s a nearly 20% increase!
• 20. $1,164 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 2004 2006 2008 2010 2012 2014 Average Monthly Rent
• 21. The good news is that this trend may be coming to an end.
• 22. According to Nick Timiraos from The Wall Street Journal: “It could get a touch harder in 2015 and 2016 for landlords to keep raising rents as aggressively.”
• 23. Let’s hope he’s right!
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