The cost of renting a home in the United States is soaring at the fastest pace in decades, putting a squeeze on millions of Americans and adding to inflationary pressures that could complicate the Federal Reserve’s efforts to support the economic recovery.
The surge in rents reflects a mismatch between supply and demand in the housing market. More people are looking for their own space as the pandemic eases and they resume work, study and social activities. Many young adults who had moved back with their parents are now seeking their own apartments. Some couples who separated or divorced during the lockdowns also need new homes. And some renters who had hoped to buy a house have been priced out by the skyrocketing home prices and mortgage rates.
Meanwhile, the supply of rental units has not kept up with the rising demand. The construction of new apartments has been hampered by supply chain disruptions, labor shortages and rising costs of materials. The nationwide inventory of available rental units fell by 9% in June,2022 from a year earlier, according to Apartment List, an online marketplace for rentals.
The result is a bidding war for rental properties that has pushed up prices across the country. Some cities, such as Austin, New York and Miami, have seen rents increase by more than 30% in the past year. Even smaller markets and rural areas have experienced double-digit rent growth.
The rising rents have a direct impact on the living standards and well-being of millions of Americans who spend a large share of their income on housing. Many renters are struggling to afford their monthly payments and face the risk of eviction or homelessness.
The rising rents also have broader implications for the economy and monetary policy. Rents account for more than 30% of the consumer price index, the main measure of inflation in the U.S. As rents increase, they put upward pressure on inflation, which erodes the purchasing power of consumers and businesses.
The Federal Reserve, which has kept interest rates near zero and bought trillions of dollars of bonds to support the economy during the pandemic, has said that inflation is likely to be transitory and will subside as supply bottlenecks are resolved and demand normalizes. However, some economists and investors are worried that inflation could prove more persistent and force the Fed to tighten monetary policy sooner than expected, which could slow down the recovery or trigger a recession.
The outlook for rents depends on how quickly the supply and demand imbalances in the housing market can be corrected. Some analysts expect that rent growth will moderate as more rental units come online and as some renters move back to cheaper or more spacious areas. Others warn that rents could continue to rise as long as wages and incomes do not keep up with housing costs.
The rising rents also raise questions about the adequacy and effectiveness of public policies to address the housing affordability crisis in the U.S. Some advocates call for more federal and state funding for affordable housing programs, rent subsidies and eviction protections. Others argue that local governments should ease zoning restrictions and regulations that limit the supply and diversity of housing options.
The bottom line is that rising rents are not only a financial burden for millions of Americans, but also a challenge for policymakers who need to balance competing goals of supporting growth, containing inflation and ensuring social stability.