The one factor that could solve America's rental crisis
Americans being squeezed out of major cities because of surging rents may finally catch a break.
New apartment construction is on track to reach nearly 461,000 this year—the highest in 50 years—according to a report from online rental marketplace RentCafe.
Major cities from New York to Austin and Miami are seeing a surge in new apartment construction. Most of the new buildings are located in 20 metro areas where 41% of renters live.
The report predicts that new construction will remain high well into 2025 and roughly 1 million new units will be completed that year alone.
Although renters may not feel it, apartment construction has been booming since the pandemic. It's just that the demand for those apartments has been growing faster.
During the height of Covid, “work-from-home prompted renters to form their own households to gain more living space for offices, children and pets,” said Doug Ressler, business intelligence manager at Yardi Matrix, a real estate data firm.
The construction boom means that renters in major cities will soon have a bigger supply of homes to choose from.
In theory, this should help keep rent prices at bay. But theory and reality aren’t always aligned, especially in post-pandemic America.
“Rent-burdened” Americans have few options
For the first time in over 20 years, the average American is spending more than 30% of their income on housing.
For decades, experts have warned people not to go above that symbolic number—because the more you spend on housing, the less you have for savings, retirement, debt payments, and other obligations.
The problem is even worse for low-to-moderate-income families, where up to 40% of their paychecks go toward rent, according to Lu Chen, a senior economist at credit rating agency Moody’s Analytics.
Tenants have very little choice or say in the matter.
The national median rent price topped $2,000 for the first time in June 2022. Two months later, it peaked at $2,056, according to Redfin, a real estate listing website.
Tallying it all up, average rent prices in major cities are up 30% or more year-over-year.
Prices have come down somewhat, but as of August 2023, the national average was just $16 below the all-time high. That’s less than the average meal at 5 Guys or Chipotle these days.
Is it enough?
The pace of apartment construction is moving in the right direction, but builders need to sustain their current pace to keep rent prices in check.
According to the National Multifamily Housing Council, a non-profit trade group based in Washington, D.C., the U.S. needs 4.3 million new apartment units by 2035 to meet demand.
That number is reachable, but getting there depends on many factors—workers, materials, and building permits, to name a few.
Rent affordability could become a hot-button topic in the next presidential election as more economists and academics call for rent control.