Rental price growth, which took a brief breather this winter, is surging higher again, adding fresh urgency to policymakers’ considerations of how to address a worsening affordability crisis.
In March, the cost of rent was 3.7% higher than last year, the Labor Department reported Wednesday. That’s the strongest annual growth since April, and a tick higher than the full-year average of 3.6% yearly gains throughout 2018. What’s more, it’s still growing faster than wages, as average hourly wages grew 3.2% over the same time period.
In the aftermath of the recession, rental costs were subdued. But then household formation began to accelerate as the economy healed – but the housing industry didn’t. The U.S. now has a deficit of about 2.6 million housing units affordable to low- and moderate-income Americans, according to the Joint Center for Housing Studies at Harvard University.
That roughly matches a Freddie Mac analysis that found an overall shortfall of about 2.5 million housing units.
In 2010, the first full year after the recession ended, rents grew, on average, barely at all, compared to the year before. By 2016, rental price growth was 3.8% compared to the year before.
Growth in rents subsided a bit over the next few years, thanks largely to more multi-family housing being built. But as MarketWatch reported last April in a story titled, “That apartment building boom is slowing — so rent is about to accelerate,” builders pivoted slightly, constructing more houses instead of multi-family units.
“There’s so much demand for housing that what seems like a ‘supply glut’ will be absorbed,” we commented at the time.
After years of rents – not to mention homes to own – remaining increasingly unaffordable for most Americans, a better question than “how fast are rents rising?” is “what can be done about it?”
The issue is gaining ground with academics, policymakers and even industry.
A paper published in April by a group of academics, including Columbia Business School Professor Stijn Nieuwerburgh, found that rent control policies do not decrease the supply of affordable housing, in contrast to previous research. As quantified in the new study, the “overall positive impact of rent control” — including ancillary effects, like reducing inequality and providing a stable economic footing for more households — “more than compensates for any loss in market efficiency.”
Meanwhile, home builders are increasingly deploying resources to meet entry-level price points, according to a recent analysis by Moody’s Investors Service. For some large builders, like D.R. Horton, the entry-level affordable product represents nearly half of all recent sales. To be sure, the vast majority of single-family homes are built for purchase, not rent, but that share is trending up.
And the critical need for affordable housing seems to be increasingly resonating with lawmakers. On Tuesday, a trio of Democratic congressmen introduced the Rent Relief Act in the House of Representatives. Kamala Harris, a Democrat running for president, sponsored the bill in the Senate. The legislation would create a new tax credit for Americans who spend at least 30% of their gross income on rent and utilities.