Rent hikes continue to plague many renters across the United States, despite the recent increase in apartment construction. While the overall median rent rose just 0.5% in June compared to the previous year, some cities such as Cincinnati and Indianapolis saw increases of 5% or higher. Additionally, much of the new construction consists of luxury apartments, which are unaffordable for many individuals.
According to rental listings company Rent, the median U.S. rent reached $2,029 in June 2023, up from $1,629 in June 2019. The surge in demand for apartments during the pandemic contributed to the steep rent increases. However, these rising costs are putting a strain on renters’ incomes, pushing them into a category called “cost-burdened,” where 30% or more of their income goes towards rent.
Melissa Lombana, a high school teacher in Miramar, Florida, experienced a 13% increase in her one-bedroom apartment’s rent last year and another 6% increase this year. Now, nearly half of her monthly income is dedicated to rent, leaving her concerned about her future affordability. Lombana, like many other renters, has been unable to find a more affordable apartment, despite increased construction in some areas.
Developers have been rushing to complete apartment projects initiated during the high-demand pandemic period, resulting in nearly 1.1 million apartments currently under construction, a level not seen since the 1970s. However, a considerable portion of these new rentals will only be available in select metropolitan areas, and the majority will consist of luxury apartments. This concentration limits the impact on overall rent prices and availability in many regions.
Even in metropolitan areas where there will be a noticeable increase in apartment availability, such as Nashville, most of the new units will be in the luxury category, with little reduction in rental costs. According to Hessam Nadji, CEO of commercial real estate firm Marcus & Millichap, the rental market may experience a period of flattening, but substantial rent declines are not expected.
The surge in rents has created difficulties for workers to keep up with inflation, despite wage gains in recent years. Data from Moody’s Analytics shows that between 1999 and 2022, U.S. rents increased by 135%, while incomes grew by only 77%. Although Realtor.com predicts a nationwide average rent drop of 0.9% this year, rents are still rising in many markets across the country, particularly in areas with robust job growth.
The construction boom is ultimately insufficient to address the high cost of renting for many Americans. The challenge lies in creating more affordable housing options, as current costs and restrictions incentivize developers to focus on luxury apartments. Expanding the supply of moderately priced rentals would alleviate some strain, but additional subsidies may be necessary to make housing affordable for low-income households, according to researchers at Harvard University’s Joint Center for Housing Studies.
Despite the overall slowdown in rent increases, tenants like Joey Di Girolamo in Pembroke Pines, Florida, fear future sharp rent hikes. Di Girolamo had to downsize from a two-bedroom townhome to a one-bedroom apartment last year to avoid a significant increase in rent. Recently, his rent increased by nearly 10%, and he worries about the future affordability of his housing.
In conclusion, while the construction boom has led to a slight slowdown in rent increases nationwide, many renters still face rising costs. The concentration of new construction in luxury apartments and certain metropolitan areas limits the impact on affordability for most Americans. To address the housing shortage and affordability challenges, a focus on constructing more affordable housing and providing additional subsidies is necessary.