Why the Cost of Rent Is Soaring

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Why the Cost of Rent Is Soaring

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If it seems like your monthly rent check is getting bigger at a faster rate each year, it’s not your imagination.

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According to new data, the average cost to rent an apartment is growing at nearly three times the rate of inflation!

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Why is this happening?

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Since the financial crisis, the percent of Americans who own their homes has fallen dramatically.

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In 2004, 69% of households owned the home they lived in. But by 2014, this had fallen to 64%.

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This implies that, over the past decade, an estimated 5.9 million households that would have otherwise owned a home have chosen to rent instead.

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To make up for this, builders of multifamily housing units have tried to keep up with the increased demand.

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This is why multifamily building starts are at a historic high.

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But because builders haven’t been able to increase supply fast enough, apartment vacancy rates have dropped to the lowest point in more than a decade.

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In 2009, 8% of apartment units were vacant. Today, only 4.2% are empty.

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The net result is that landlords have little incentive to negotiate on price.

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In fact, just the opposite is true: They have every incentive to increase rent.

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And that is exactly what they’ve been doing.

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In 2007, the average rent across the country was just over $1,000. Today, it’s almost $1,200. That’s a nearly 20% increase!

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The good news is that this trend may be coming to an end.

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According to Nick Timiraos from The Wall Street Journal: “It could get a touch harder in 2015 and 2016 for landlords to keep raising rents as aggressively.”

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Let’s hope he’s right!

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