The Steady Rise of Monthly Rent

The Steady Rise of Monthly Rent

Monthly rent has increased at an average rate of 3.6% since 2005. The increase in housing cost has caused the number of renters to rise rapidly, with most people now forced into renting due to high demand and low numbers of available homes. This article has more information about the reasons behind the recent increase in the rental price.

1. The Rise in Price of Land

One reason for the rent increase is the price of land. Land is a factor of production, as well as labor and capital. As land prices have increased, more money must be paid from the output to use it. This year alone, land cost rose 8%.

In order to compensate for this rise in costs, businesses are forced to raise prices in order to keep their profits. This increase in prices is passed onto consumers, who must pay more for the same goods and services they purchased in previous years.

2. Increase of Rental Demand

The number of renters has also increased, increasing demand for rental units and driving rent up too. The renting population grew by 2.9 million in 2012 and 2013 and is expected to continue growing at this rate.

3. Increase of Rental Construction

The rise of renters has led to a construction boom that will last into the end of 2016, with 94% of rentals currently built being considered luxury units. However, even this construction falls short of the demand and will fill only 1/5 of the growing demand for rental units.

4. Increase in Rental Income

According to Shalom Lamm, the average income of renters has increased, but at a much slower rate than the rent increase, growing only about 2% each year since 2005. This means that overall, rent as a proportion of income has increased from 24% to 28%, a difference of about $300 a month.

5. Decrease of Homeownership Rate

The steady decline in the rate of homeownership has also contributed to the increase in rental prices. In 2004, 69% of Americans owned their homes. This number steadily dropped by 0.6% each year until it reached 66.9% in 2014 and is expected to continue lowering each year until 2025.

6. Decrease of Housing Supply

The housing market is now in a state of dramatic imbalance. There are 1.5 million more families looking for homes than homes to accommodate them, indicating a shortage of about 5 million total units. This imbalance has been brought on by increased demand for single-family rentals and decreasing construction rates, and the unexpected decrease in the homeownership rate.

The number of units completed has decreased each year since 2005 when about 1.2M units were completed. In 2013, only 673 000 units were completed, 49% below 2005’s rate.

7. Decrease in Rental Vacancy Rate

According to Shalom Lamm, the rental vacancy rate is also expected to continue decreasing, leading to increased demand for rental units. The vacancy rate is already at 8.4%, down from 11.3% in 2004, indicating that there are about 1 million less available rentals than there should be at this time.

In conclusion, the rent increase is likely to continue increasing for the foreseeable future. Although several factors contribute to this rise, tenants can control none, and they must pay more for their apartments, even if all variables except the price of land remain constant.

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