A national housing shortage is driving increased rent prices.
Renters have fewer options to choose from when searching for a new home.
Sometimes, buying a home is less expensive than renting.
Some popular rental markets have experienced a 20% increase in rental prices.
The housing market has been the lead news story for a couple of years because of the severe housing shortage and the intense demand to buy a home. If you’re a renter, the unbalanced supply and demand affects your monthly rent, too.
If you’ve been priced out of the market or don’t want to waive important contingencies to secure a home, renting is your only option—but rental prices are at an all-time high. These are six ways increased rental prices impact you and the overall housing market.
1. Rental Communities Are Growing
Well before the current housing crisis, a growing number of people who weren’t interested in the finances and maintenance of owning a home (or who were priced out of the market) looked for single-family homes to rent. The demand was, and is, so high that companies and investors are building rental communities to cater to the crowd who appreciates the convenience and the stress-free rental lifestyle.
2. Buying a House Might Be More Affordable
If you’ve shopped for a rental home over the last year, you’ve witnessed the housing shortage effects first hand, but here’s a real-world example for more perspective: Realtor.com reports that in just one year, from April 2021 to April 2022, rents increased 16.7%. Property owners are increasing tenants’ rent to cover a variety of higher costs like property taxes, labor for maintenance and repairs, and to keep with overall inflation costs.
If you’re considering renewing your lease, you’ll likely pay more per month, but you won’t pay as much as your neighbor who just started a lease agreement—new renters are bearing the brunt of increased rental costs. Either way, before signing, it's worth talking with an experienced real estate agent near you to see if the housing demand in your favorite neighborhoods has softened. If your finances are ready and the timing is perfect, you might pay less for a mortgage than rent in some cities.
3. Renters Need More Time to Save Larger Down Payments
If you think of yourself as a temporary renter and ultimately want to buy a house, you’ll need more time to save for a down payment, thanks to increased rent prices and climbing home values. Spending more on rent each month could change your down payment savings plan and add to the time you’ll call a rental home.
Plus, a 2021 home services market report from Angi estimates the rise in common goods and materials prices is increasing the cost of new homes by roughly 10%. This means you’ll need to find ways to save even more money to afford a newer home faster.
4. Renters Aren’t Moving
On the other hand, many renters will stay in their homes. The lack of affordable housing is the main reason, but scarcity is still a significant factor. Usually, young renters will age out of rental homes and want more space or better amenities, but now, long-term renters are the norm, especially if you’re part of the largest generation of house hunters, the Millennials.
Renters who stay put add more stress on the housing market because they don’t upgrade to new homes and leave vacancies for first-time renters. However, Millennials are also the largest buying group, so they’re also driving the demand for homes for sale when they finally decide to leave their rental.
5. Renters Have Fewer Housing Choices
Renters who can’t find affordable housing look for ways to maximize their options. In the past, renters could shop around and find homes that fit their budget and lifestyle. But now, renters are focusing on low-cost, low-quality rentals that they likely would have overlooked before. Plus, they might consider adding a roommate, sharing a room, or subletting to reduce their rental costs.
6. Multi-Family Options Are in High Demand, Again
Over the pandemic, small home renters (condos and apartments) fled their tight quarters to find more breathing room in the suburbs or rural areas. Some moved home with their parents or family. Now, renters are returning to big cities and demand multifamily rentals again.
Although construction has begun in some areas, multifamily options remain low, and demand is high. So, if you’re looking for a new apartment in the city, you should expect to pay more than ever. Some cities have seen rents jump more than 20% from last year. You may need to reconsider your relocation plans, especially if you’re daydreaming of moving to Nashville, Austin, or just about anywhere in Florida—it’ll take a few years before inventory catches up and prices come down.