Your landlord called and says your rent is going up.
Well, not really, But the Urban Institute, a Washington, D.C. think tank that conducts research on economic and housing policy, sees plenty of reasons for your landlord to call.
Note I said “reasons,” plural. There are a lot of factors that drive rent levels, but in general rents declined or were pretty darn stable from 1980 through 2000. That’s a long time for landlords to go without a raise.
But now they’re getting that raise. If you look at the graph to the right, you’ll see that rents have been rising steadily since 2010, and appear to be on a sustainable trajectory at the moment. What is driving this? I’ll let Andrea Riguier of Marketwatch tell the story:
“Think the rent is too damn high? You haven’t seen anything yet, according to housing experts.
Demand for rental housing, already elevated in the aftermath of the financial crisis, is only going to grow. That’s going to pressure prices even higher.
More than 1.25 million new households will be formed in 2016, as the economy and job market heat up, according to CoreLogic Chief Economist Frank Nothaft. That’ll take place even as rental vacancy rates hover near 20-year lows, Nothaft wrote in CoreLogic’s 2016 Outlook for Housing.
When the housing bubble burst, homebuilders retreated. Many went out of business, and construction of both single-family homes and multi-family buildings plunged. For several years, that didn’t matter: younger people stayed home with mom and dad, and many people doubled up with roommates.
The financial crisis spooked many people away from homeownership, and, as the Urban analysts note, many of the millions of homeowners who lost their property to foreclosure haven’t recovered their credit or all of their equity.
That meant that when builders started breaking ground again, it was mostly for multi-family apartment buildings. Multi-family housing starts made up 36% of all starts in the third quarter, according to prior reports.
Meanwhile, other big-picture trends are shaping Americans’ housing decisions. Millennials, the biggest generation in history, are also more diverse than earlier generations. Hispanics and African-Americans have historically rented at higher rates than whites have, and were also hit harder in the financial crisis. As their home equity vanished, so did their children’s access to funds for their own down payment or higher education.
Younger people, not just millennials, are increasingly delaying marriage and having children. That means that purchasing homes will come later in their lives, and they’ll spend more time renting.
All those forces have the Urban Institute warning of “tough times ahead” for renters. Urban’s analysts believe there will be 6.5 million more renter households in the next ten years, and what it calls “cost-burdened” renters will grow to nearly one-third of the total, or 4 million.
That assumes rents rise about 3% annually as incomes grow 2%. The cost of rent has risen 3.7% in the last twelve months, and wages, adjusted for inflation, have grown 2.4%.”
To read the entire article and to play with their nifty interactive rent CPI graph, click here: Renting Isn’t Getting Any Cheaper, Analysts Say.
The bottom line: In your rent vs. buy calculus, take into account that rent has no reason to go down, and plenty of reasons to go up.