Rent prices have risen explosively since the end of the coronavirus pandemic, and a lack of supply and price stickiness are contributing to the current rise, according to experts who spoke to the Daily Caller News Foundation. The situation is said to be connected and unlikely to ease.
Average rent prices for Americans rose 6.1% in January from a year earlier, far exceeding the general inflation rate of 3.1% for the same period. according to to the Federal Reserve Bank of St. Louis (FRED). The ongoing rise in average rents for Americans today is due to a lack of supply of apartments that people can afford and the persistence of long-term rental contracts, making the increase longer than other inflationary spikes, and it remains to be seen how long it will last. It is opaque. Experts told DCNF that rent costs will continue to rise. (Related: Another worrying sign in the housing market)
“Rent prices continue to rise faster than the overall rate of inflation,” Joel Griffiths, a fellow at the Heritage Foundation's Thomas A. Roe Economic Policy Institute, told DCNF. “While the year-on-year rate of change has slowed from a peak of 8.8% in April last year, households are still feeling the pressure as rents rise faster than wage growth and inflation. The last time annual rate increases were this high over a period of time was from 1977 to 1983. In other words, people under 55 have never experienced rent pressure to this extent.”
Rent insolvency has reached an all-time high, with 22.4 million households spending more than 30% of their income on rent and utilities, an increase of 2 million households in just three years. The number of low-rent properties renting for less than $600 per month has fallen by 2.1 million units since 2012, indexed to inflation, to a total of 7.2 million units in 2022.
The number of new apartments built in 2023 will reach a 36-year high, totaling 440,000 units, with another 670,000 units expected to be built in 2024, after continued high demand in 2021 led to many new developments. It is scheduled to be completed and put on the market. 2022, according to Go to real page. Despite new construction, most developments are targeted at upper-class customers, resulting in lower prices for luxury homes and higher prices for standard homes, creating an apartment shortage for the average American. It could not be alleviated. according to To Axios.
The condominium boom is coming to an end. The number of permits is on the decline, and in January it just fell to its lowest level since the coronavirus outbreak. If fewer buildings are started, this high level of completion will not last long. The decline in rental prices is nearing an end… pic.twitter.com/k57CiF1i6Q
— Dr. EJ Antoni (@RealEJAntoni) February 16, 2024
“It's very difficult to predict future rent trends,” Peter Earle, an economist at the National Bureau of Economic Research, told DCNF. “One of the lessons the Fed is taking from the current inflation spike is that prices are much more sticky than expected. The Fed has been slow to react to the contractionary policy it has implemented for several reasons. . Relative price changes have no effect because other products and services cannot really be substituted by rental. Furthermore, the amount of housing available in a particular city or region is usually influenced by natural factors. and artificial barriers, which also set a floor for prices.”
The average lease term in 2022 was 12 months, accounting for approximately 60% of all lease agreements, followed by month-to-month agreements at 31.8% and all other terms at 8.6%. according to to the Bureau of Labor Statistics.
Year-on-year rent growth peaked at 8.8% in March 2023, but was slower than the general inflation peak of 9.1% in June 2022 due to slower reaction time to cost increases. . according to To Fred. Rent prices have increased a total of 19.5% since President Biden took office, slightly outpacing the overall inflation rate of 18%.
Many developers are also constrained by high commercial real estate debt, and demand has declined due to the work-from-home trend that began during the COVID-19 pandemic and increased borrowing costs due to high interest rates. There is. Earl told DCNF that using commercial properties for residential purposes could alleviate some of the constraints on the supply of rental units.
“There may be a stop-gap constructive measure to simultaneously address both persistently high rental prices and growing commercial real estate problems by mitigating zoning issues where possible,” Earle said. told DCNF. “Rezoning certain commercial buildings and neighborhoods as residential will bring supply to the rental market and put downward pressure on rents. At the same time, the rezoning of certain commercial buildings and neighborhoods as residential will bring supply to the rental market and put downward pressure on rents. At the same time, post-COVID-19 physical office space Filling some of the buildings that are currently vacant due to withdrawals and general overbuilding will relieve some of the pressure on real estate lending that weighs on local banks' balance sheets. right.”
The number of office spaces converted into apartments has increased dramatically in recent years and is expected to rise from just 12,100 in 2021 to 55,300 in 2024. according to Go to Rent Cafe. The conversion is most pronounced in Washington, DC, New York City, New York, and Dallas, Texas.
The White House deferred a request for comment from the DCNF until a press conference.
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