Why the Cost
of Rent Is
Soaring
If it seems like your monthly rent
check is getting bigger at a
faster rate each year, it’s not
your imagination.
According to new data, the
average cost to rent an
apartment is growing at nearly
three times the rate of inflation!
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
Why is this happening?
Since the financial crisis, the
percent of Americans who own
their homes has fallen
dramatically.
In 2004, 69% of households owned the home they lived in.
But by 2014, this had fallen to
64%.
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
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.
To make up for this, builders of
multifamily housing units have tried to keep up with the
increased demand.
This is why multifamily building
starts are at a historic high.
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
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.
In 2009, 8% of apartment units
were vacant. Today, only 4.2% are empty.
6.7%
8.0%
4.2%
0%
2%
4%
6%
8%
10%
2004 2006 2008 2010 2012 2014
Apartment Vacancy Rate Since 2004
The net result is that landlords have little incentive to negotiate
on price.
In fact, just the opposite is true:
They have every incentive to
increase rent.
And that is exactly what they’ve
been doing.
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!
$1,164
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
2004 2006 2008 2010 2012 2014
Average Monthly Rent
The good news is that this trend may be coming to an end.
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.”
Let’s hope he’s right!
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