Finding the perfect place to live is one of the primary goals of most millennials. The popularity of home improvement and social media posts about home décor and living have fueled this dream for many. However, with the sky-rocketing rent prices, searching for a home within your budget becomes a considerable challenge.
There has been a significant jump in rent prices over the last two years in many cities across the globe. In the US, there was a 3% spike in rents in 2020 but leaped to 14% in 2021. New Jersey, New York, and Florida face steep rent prices. Austin, Texas, saw a 40% jump in rent for new apartment listings.
Meanwhile, some parts of Asia and Europe also bear the brunt of housing inflation. For example, according to the Singapore government data, the private residential properties’ rental price index rose to 114.2%.
There’s no way to tell when the rent prices will drop. But to help you understand why you see these spikes in rent here’s a rundown of the possible causes.
What’s Causing the Spike in Rent Prices?
1. A highly competitive housing market
The pandemic resulted in stiff competition within the housing market. A study reveals that the average home sale price increased by 17%.
Real estate investors seeking capital appreciation added more properties into their portfolios, making the goal of homeownership harder for others. Apart from the rising prices, many renters also found it hard to compete in the housing market because of all-cash offers from wealthy buyers.
Potential homeowners have to hold off their dreams and continue to rent longer than they intended. With this, some rental management companies and landlords leveraged the situation and raised rents. The booming real estate market priced out millennials whose budgets and finances are not ready for investing in a house.
2. More people want to live independently.
The housing market is not spared from the law of supply and demand. As the economy opens up, more people are yearning to have their own space. Those who lived with parents or roommates during the lockdowns now want to go solo.
Remote workers want to work in peace without any distractions from other people. The need for flexibility, privacy, and independence drastically increased the demand for individual units.
Furthermore, material shortages and construction delays due to the pandemic led to a limited housing supply. These disruptions resulted in a case of short supply and low demand, thus, leading to jacked-up rental prices.
3. Pandemic rent freezes are over.
At the height of the pandemic, several cities worldwide enacted specific measures to limit rent or freeze prices of property rentals to help people cope with financial challenges. However, when restrictions started to ease up, most actions had to be lifted.
Some renters reported that management companies and landlords had increased rent prices to make up for their lost income in the last two years.
Many tenants are just starting to rebuild their lives after the pandemic has settled, and there’s no way for some to afford the price increase. The cost of housing has gone up, but salaries have remained stagnant. Some apartment buildings also increase the rent for lease renewals and monthly rent, with an increase of about $250 or more.
4. Inflated cost of construction materials
Construction raw materials costs, including timber, steel, bathroom, and window fittings, leaped to 20% in 2021. For instance, the index price for construction materials, such as lumber and plywood, saw a 12.7% and 17.6% increase. In addition, rental fees will surge when other expenses such as higher labor and transportation costs are factored in.
This inflation had a domino effect on the rent costs since landlords needed to recoup their expenses. Therefore, a real estate investor may use inflation as an opportunity to pass on their considerable spending to tenants through a rental price increase.
Can the Average Worker Still Get Their Place?
The record-breaking surge in rental prices made average workers wonder if they could still get a place of their own. However, given that landlords also suffered financial setbacks in 2020 and are trying to recoup losses, tenants are not in the position to negotiate a lower rent, especially in hot rental markets.
However, there are measures that one could take to find a decent place amidst the current rent situation.
How to Look for an Affordable Place to Live
- Find a roommate to ease the cost of rent and utilities.
- Reduce housing costs by letting go of specific amenities.
- Live in a different city or area that offers lower rental costs
- Consider finding and negotiating with a mom-and-pop landlord instead of corporate-owned properties.
- Offer to help with repairs and maintenance to landlords in exchange for a lesser rent.
- Pay for a bigger security deposit.
- Sign up on rental apps to get updates on good deals and new rental alerts.
- Find apartment buildings that are not yet listed on rental websites or are still being constructed.
The key to finding an affordable place in this highly-competitive rental market is to act as soon as vacancies arise. It’s also best to maintain a good credit standing to get approved on house loans soon, so renting will become a thing of the past. Embodying tenacity, resilience, and resourcefulness can land potential renters a place they can call their own.