Rent continues to grow at a stronger pace than incomes, capping household formation and distorting the housing market.
Rent price growth matched the highest since the financial crisis, another indication of the imbalance in the nation’s housing market.
In April, rent was 3.7% higher than a year ago, the same 12-month rate of increase for the fifth month in a row, the Labor Department reported as part of the consumer price index report. That’s the highest since before the financial crisis, and it’s much bigger than pay increases.
There are many reasons. People of all ages who doubled up or basement-squatted during the recession are now forming their own households. Baby boomers are selling big homes and moving to smaller, more flexible living arrangements. Shifting ethnic demographics signals a future with lower homeownership than in the past. Mortgage credit is tighter post-financial crisis.
That’s all contributing to demand that’s vastly outpacing supply, pushing rental costs ever higher.
Now add another voice to the chorus of gloom about the rental market. In early May, a report called “Diverted Homeowners, the Rental Crisis and Foregone Household Formation” was released by the Mortgage Bankers Association.
Yes, even the industry group that represents financing for homeowners is concerned about rental un-affordability.
In the past ten years, the authors wrote, six million would-be homeowners have shifted to renting, or have left the housing market altogether. But rental housing stock only rose by 5.2 million units over that period.
That’s had several consequences, the authors note. Rental affordability declined to records in recent years, creating “an increased incidence of high rental cost burdens that was remarkable for its relative uniformity across the nation.” Rental burdens are worse for lower-income people, the authors wrote, and the burdens born by the lowest income households may force them out of the housing market altogether.
Lower levels of household formation – whether rented or owned – weighs on the economy. Fewer households means fewer moving vans, furniture purchases, handyman jobs, and utility bills.
But the MBA authors also believe it takes a bite out of homeownership. The higher incidence of families renting means that there are 7.4% fewer owner-occupied homes than would have been expected before the recession, they wrote.
That means 7.4% fewer of all the things that help make housing such a huge chunk of national GDP: lawyer and real-estate-agent fees, appraisers and insurers, home improvements and mortgage financing.