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Why the Cost of Rent Is Soaring
If it seems like your monthly rent check is getting bigger at a faster rate each year, it’s not your imagination.
According to new data, the average cost to rent an apartment is growing at nearly three times the rate of inflation!
Why is this happening?
Since the financial crisis, the percent of Americans who own their homes has fallen dramatically.
In 2004, 69% of households owned the home they lived in. But by 2014, this had fallen to 64%.
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.
To make up for this, builders of multifamily housing units have tried to keep up with the increased demand.
This is why multifamily building starts are at a historic high.
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.
In 2009, 8% of apartment units were vacant. Today, only 4.2% are empty.
The net result is that landlords have little incentive to negotiate on price.
In fact, just the opposite is true: They have every incentive to increase rent.
And that is exactly what they’ve been doing.
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!
The good news is that this trend may be coming to an end.
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.”
Let’s hope he’s right!