The #1 Reason Rental Prices Are Soaring Now

The reason that rents are rising so quickly is more people are competing for places to live. The rental vacancy rate fell to 5.8%—the lowest it’s been since the mid-1980s, according to a recent report from the Joint Center for Housing Studies of Harvard University. And rents spiked in response, rising nearly 20% annually in November in the 50 largest housing markets, according to the most recent Realtor.com® data.

This is hurting lower-income renters the worst as the housing shortage coupled with high prices is making it difficult to find places to live that fit their budgets.

Why is there a rental shortage?

There were 44 million renter households in the third quarter of 2021, an increase of about 870,000 since the first quarter of 2020 before the pandemic took off in America.

There isn’t just one simple explanation for the steep rise of renters.

At the start of the pandemic, lots of folks lost their jobs and incomes and moved in with their families.

Many renters, including those with the lowest incomes, stayed put during the pandemic thanks to eviction moratoriums. Even as many of those protections expired, there was no eviction wave as some real estate experts predicted. This kept the market tight.

Even those who can afford to buy a home may prefer to remain renters in the current market. Over the past decade, the percentage of renters earning at least $75,000 shot up 48%, according to the Harvard report. These households now make up just over a quarter of all renters.

These renters are “also occupying units that are more affordable to moderate-income and lower-income households,” says Hermann. “Over time, it’s going to drive up rents even at the low end.”

There are also those who are enticed by the single-family rental market. This allows them to live in a more spacious home with a backyard, often in more suburban areas, without having to worry about coming up with a down payment and closing costs.

Many renters would be homeowners if they could win a bidding war

They’re also competing with big investors, some of which can make attractive all-cash offers.

More businesses became landlords in 2021 instead of mom and pop investors who own a property or two. The percentage of larger investors, such as hedge and pension funds and large financial companies, purchasing rental properties reached its highest level in two decades, according to the report. About three-quarters of those sales were for single-family homes.

More big landlords have been getting into the rental game since the turn of the century. From 2001 to 2018, the percentage of large landlords rose 8 percentage points, to make up 26% of all rental owners, according to the report.

Most renters kept up their payments during the pandemic—despite the eviction moratorium

Despite the eviction moratorium, put in place in the early days of the pandemic when unemployment was soaring, most tenants kept paying their landlords. Only 15% were behind in the third quarter of 2021, according to the Harvard report. (The federal moratorium was instituted in March 2020 and ended in August 2021, although many cities and states have their own eviction bans with varying expiration dates.)

Some tenants received federal rental assistance, despite state and local governments running into problems distributing the money to those who needed it. Stimulus checks and other federal assistance helped tenants hang on. The lack of workers resulting in hiring bonuses and big pay increases has also helped folks to remain in their homes.

Despite the pain wrought by the pandemic, eviction filings were 40% lower than they were historically, according to the Eviction Lab at Princeton University. However, the nation is still 6.8 million affordable rental units short of what’s needed.

Article source {realtor.com}

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