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!

4%

1.3%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Rent Inflation

Yearly Increase in Average Monthly Rent vs. 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%.

69.2%

67.2%

64.4%

62%

64%

66%

68%

70%

72%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

U.S. Home Ownership Rate Since 2004

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.

0

50

100

150

200

250

300

350

400

2000 2002 2004 2006 2008 2010 2012 2014

Multifamily Building Starts Thousands of units, seasonally adjusted annual rate

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.

6.7%

8.0%

4.2%

0%

2%

4%

6%

8%

10%

2004 2006 2008 2010 2012 2014

Apartment Vacancy Rate Since 2004

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!

$1,164

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

2004 2006 2008 2010 2012 2014

Average Monthly Rent

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!

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