State of play
From 2015–2019, the average annual rent growth across major markets was 3.5% — but in 2021 it was 13%, said Affleck, senior vice president of research at John Burns Real Estate Consulting.
- And in some Florida cities it was as high as 30% or more.
Meanwhile, a measure of rent prices in the Consumer Price Index, released last week, showed rents up 3.8% in 2021. That's higher than the historical average but certainly nowhere near those other numbers.
Why it matters
Rising rents are part of the story on inflation and the housing crunch. They're particularly painful for Americans already devoting a large part of their income to housing.
- But rent data is difficult to parse and the numbers can be confusing.
Let's dig in! Affleck's numbers show asking rents at institutional properties — mostly large 50-unit plus buildings. That's in line with the eye-popping numbers you see coming from other private sources like real estate company Redfin.
- The numbers don't include renewal rent rates. When you just renew your lease, rent increases tend to be lower. Plus, mom-and-pop properties aren't included in Affleck's numbers and are more difficult to track.
- As for the CPI data, the Labor Department surveys a sample of renters and landlords at all kinds of buildings — and does include renewals. That's one reason you get a much lower number.
The big picture
Rents are going up for a bunch of reasons, all tied to changes in demand relative to the limited housing supply, Axios reported earlier this month.
- In this pandemic world, people are at home a lot more, said Daryl Fairweather, chief economist at Redfin. They want to live in nicer homes, if possible.
- Workers are also migrating out of bigger, more expensive cities and into lower-cost places in Florida, Austin and Phoenix, taking advantage of the remote working world.
- Plus, with housing supply so low, there are even more renters looking for places to live who'd otherwise buy a home.
Flashback: The highest rent growth ever recorded? Affleck said it was a 45% increase in San Jose in 2000, followed by the largest decline on record of 25% in 2001, after the dot com bust.
So why the rising rates?
According to Axios, a few factors are working together:
- The increase in remote work during the pandemic has pushed workers to warmer climates (e.g., Florida, Texas, Arizona)
- With more demand, home prices are on the rise
- Due to higher home prices, some residents are choosing to rent instead
And with Florida specifically, the problem is exacerbated by the state’s popularity among retirees.
In other words — it’s a classic case of supply and demand, with a healthy dose of bingo and water aerobics sprinkled in.