Rental Market Trends in the U.S. — Rents Accelerate Again
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Updated Nov. 8 with the latest Zillow data for rent.
More than 35% of households in the U.S. rent homes, according to 2017-2021 data from the U.S. Census Bureau. Over the last few years it’s become more expensive than ever to rent. But price growth is continuing to slow down since hitting an annual peak of 16% in Feb. 2022.
Typical asking rents in the U.S. are now $2,011, on average, representing a 3.2% increase compared with the same time last year, according to the real estate website Zillow’s rental report for September released on Oct. 6.
The driving force behind the recent slowdown is an increase in new multifamily construction coming to market, according to Zillow. But it’s likely that high loan costs will delay or prevent entirely the growth of new multifamily construction.
Right now it’s more affordable to rent than buy, which increases demand for rental housing, according to the report.
Is rent going up or down?
The price of asking rents re-accelerated on an annual basis in October following 19 months straight of deceleration. Overall rent price increases have slowed down since its February 2022 peak and remain lower than pre-pandemic rates, according to the latest data from the real estate website Zillow’s rental report for October 2023. Year-over-year rent growth ranged between 4.0% and 4.2% throughout 2019 before spiking during the pandemic.
The annual rate increase was small: 3.23% in October compared to 3.19% in September.
The price of asking rents decreased 0.1% from September to October, the report shows. It’s slightly lower than the previous month-to-month increase of 0.2% from August to September.
The following are the latest increases and declines from Zillow’s analysis of housing data in 50 cities:
Cities with the top five highest rent increases
Month-over-month:
Cincinnati (+1.0%).
Riverside, Calif. (+0.6%).
Virginia Beach, Va. (+0.4%).
Philadelphia (+0.4%).
Miami (+0.4%).
Year-over-year:
Providence, R.I. (+7.5%).
Hartford, Conn. (+7.1%).
Buffalo, N.Y. (+6.3%).
Cincinnati (+6.2%).
Chicago (+5.4%).
Cities with the top five lowest rent increases
Month-over-month:
Austin, Texas (-1.1%).
Memphis, Tenn. (-0.8%).
Raleigh, N.C. (-0.6%).
Jacksonville, Fla. (-0.6%)
San Jose, Calif. (-0.6%).
Year-over-year:
Austin, Texas (-2.8%).
San Francisco (-0.2%).
Portland, Ore. (-0.1%).
San Jose (+0.2%).
San Antonio, Texas (+0.4%).
Las Vegas (+0.4%).
Atlanta (+0.4%).
How did rent get so expensive?
The fast growth of rent costs since 2020 derives from a variety of factors, including:
Inflation. Higher costs across the board mean landlords pass on higher costs (such as rising wages for maintenance workers or repair costs) to renters. Higher rent costs contribute to inflation and the cycle repeats.
Lack of inventory. There is a shortage of vacant rental properties in general, and of affordable ones in particular.
Expired rent freezes and discounts. Landlords are making up for pandemic-era rent freezes and steep discounts in urban areas by hiking prices on new units and lease renewals.
A shifting workforce. As the pandemic increased the popularity of remote work, deep-pocketed renters sought larger homes in areas that had been previously relatively low-cost. This migration increased rents in suburban areas more than it lowered them in urban ones, yielding a net increase in rents.
More demand to live alone. Prospective renters are increasingly looking for studio and one-bedroom apartments, driving up demand for available housing, according to a November 2022 report from the real estate website StreetEasy.
Barriers to homeownership. Prospective homeowners remain renters for longer as they face high demand and low inventory of existing homes, rising mortgage interest rates, as well as supply chain disruptions that have made it more expensive and difficult to construct new homes.
As mortgage rates rose over the past year, housing prices cooled faster than rents, which are finally rising at a slower pace than in the last three years.
In 2022, a promising development began: Multifamily construction in 2022 reached a 50-year high nationwide, according to the rental listing service RentCafe. A new supply of housing is likely to bring down overall rent growth. And since many cities require inclusionary housing — meaning a portion of new housing must be affordable — new construction also means new affordable housing.
On Jan. 25, the Biden administration proposed a “Blueprint for a Renters Bill of Rights,” a new set of federal actions aimed at promoting rental affordability that also include guidelines to strengthen tenant protections .
Rent vs. inflation
Rent is a major contributor to inflation and the cost of rent is also impacted by inflation. The price index for shelter, which includes rent, makes up the biggest portion (34%) of the consumer price index, a proxy for inflation .
. The latest data from the Bureau of Labor Statistics released on Oct. 12 shows that in September shelter continued a more than 40 month increase. For September, shelter, which includes rent, was the largest contributing factor for the overall inflation increase. It is also the largest contributing factor for the core inflation increase, which excludes food and energy.
Over a 12-month period ending in September, shelter was up 7.2%. For rent, specifically, the month-over-month increase from August to September (0.6%) was 0.3 percentage points higher than the July to August increase. Over the 12-month period ending in September, rent alone was up 7.4%.
» MORE: What is the consumer price index?
But there’s also a lag in how rent data is reflected in the CPI, which means we won’t have a clear picture of housing for the bulk of 2022 until closer to the end of 2023. The lag is primarily due to the cycle of renewals for leases. Since most leases last around a year, a renter’s costs will stay the same all year long. It’s only when the lease ends that a better understanding of the rental market emerges.
The rent-specific portion of CPI has been outpacing overall inflation for decades and most sharply began to diverge in the mid-to-late 2010s.
Who is most likely to rent?
Single people are more likely to rent than couples, regardless of whether they have children, according to a 2022 rental housing report from Harvard University . Hispanic, Black and Asian residents are more likely to rent than own homes when compared with white residents. Those with incomes at or below $74,999 are more likely to rent than own compared with those with incomes $75,000 and over.
Despite soaring rents, it’s still less expensive to rent than to buy. The typical rent for an average three-bedroom place is still more affordable than owning a similar-sized home in 95% of the 222 U.S. counties analyzed by ATTOM, a land and property real estate data curator, in its 2023 Rental Affordability Report.
The generation of adults most likely to rent is Gen Z with 74% of the cohort renting their homes, according to a March 29 data analysis by RentCafe, an apartment listing service. That's a pretty recent development since Millennial home buyers only began to outweigh renters in the cohort as of 2022, the data shows. The analysis found 51.5% of millennials now own their own home. The amount of millennial homeowners increased 28% from 2019 to 2022. But baby boomers are still the dominant generation owning their own homes, representing 40% of all homeowners in the U.S.
Rent vs. income
Generally, households should be spending no more than 30% of their gross income on rent, according to the NYU Furman Center .
That means if a household earns the U.S. median income — $70,784 annually, or $5,899 per month, according to the U.S. Census Bureau — when applying the 30% rule, the goal would be to spend no more than $1,770 per month on rent .
» MORE: Cost of living calculator
Spending 30% of your income on rent means a household is “moderately rent burdened,” but spending 50% or more means a household is “severely rent burdened” by federal standards . Those with the highest rent burden are disproportionately seniors, low-income, immigrants and racial or ethnic minorities, according to a 2015 Zillow analysis of U.S. Census Bureau data. Severely-burdened renters are also more likely to have long commutes via public transit and lack cars. Children are also often present in homes with high rent burdens.
Previous rent reports:
National vacancy rates: Homeowner vs. rental
The rental vacancy rate during the first three months of 2023 (6.4%) increased from the fourth quarter of 2022 (5.8%), and is just slightly lower compared with a year ago (5.8%).
Homeownership in the first quarter of 2023 meanwhile, changed little (66%) from the fourth quarter of 2022 (65.9%) or from the first quarter of 2022 (65.4%)
.
» CALCULATE: Rent vs. buy — what’s right for you?
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