Rental Housing Crisis: Coming to a City Near You
Supply and demand seems to truly be the golden rule of economics when it comes to housing. Rental units and their owners ride the see-saw spectrum of not enough demand but plenty of space, to no more space but a lot of demand.
Currently, the American renting scene seems to be on the latter end. In fact, the situation is so extreme that many fear the rental market is facing a bit of a housing crisis—but this time it’s about apartment rentals.
Americans Shift Away From Ownership and Toward Rentals
The shift from excess supply to overwhelming demand could have, in part, been caused by a general move away from home ownership. The housing bubble of 2004 to 2006 saw people purchasing new homes en masse.
However, when the bubble burst in 2007, homeowners realized they may not have had the funds necessary to buy. At least, banks dramatically decreased the number of loans they were giving out, preventing some families from going after their dream house. As a result, instead of signing a mortgage, many families are turning to rental.
Fear may be another motivator—some want to avoid another bubble and subsequent burst, and so reach for the financial security of renting an apartment. Others may seek the simplicity of rental when first setting out to live alone.
No matter the reason, rental trends in the U.S. have taken an upturn. Experts note that the number of new units built over the last year range in the hundreds of thousands. While development is underway, it has not met pace with rental demand.
Leaving the Nest and Increasing Demand
By and large, builders expect more millennials to leave their parents’ homes and set out on their own. In fact, a majority of the rental boom is propagated by young professionals, low-income families and singles, though families with young children also account for a good portion of renters. However, many fear these parties won’t sustain themselves in an increasingly costly market.
Even with new apartment construction, renters find few vacant units. The growing demand for rental space is currently outpacing the supply. While the housing crisis of seven years ago may have centered around single-family homes, the 2014 version hinges on rental units.
Experts note that companies will continue to build new apartment complexes to accommodate the veritable tidal wave of rental demand, but new construction is currently operating at a normal pace.
Economics Wins Again
Landlords and property managers are taking advantage of the trickle of new supply by increasing rent prices. Renters have to be competitive to get the apartment they want, given that many others are in line behind them. Some people even come to the end of their lease ready to sign a new one only to find their rent has increased.
Such high costs may block the flow of demand, as more young adults realize they can’t afford the prices. Of course, the downside of this is that millennials may end up living at their parents’ homes longer than the generations before them did. If young professionals do stay at home, they aren’t contributing to the overall housing market.
Additionally, high rent prices could drive low-income families out of the competition. What could have been an affordable apartment a year ago may have turned into a unit outside of some renters’ budgets, thanks to increasing costs.