U.S. Economy: Rent Prices Surging to Insane Levels Driving Up Inflation

by Chris Haney

According to recent reports, surging rent prices that are reaching all-time highs in cities across the nation have heavily contributed to higher inflation. Rents have risen astronomically in recent years, and not just in New York City or San Francisco. The meteoric rise has impacted renters in every part of the country.

Rents continue to skyrocket as a federal moratorium on price hikes and evictions ended in August 2021. That’s left many renters across the country having to dip into their savings. In other cases, citizens have had to downsize, have fallen behind on rent payments, or have risked getting evicted since they can’t make ends meet.

If you take a look at the 50 largest metro areas in the United States, average rent prices increased by a whopping 19.3% between December 2020 and December 2021. That’s an almost 20% hike in only one year, according to Realtor.com analysis of rental properties with two or fewer bedrooms.

In fact, according to the same report, nowhere saw a larger jump in rents than the Miami metro area. Miami, Florida‘s average rents blew up to $2,850 per month, which is an astounding 49.8% increase compared to the previous year. Other Florida cities, including Tampa, Orlando, and Jacksonville, have also seen huge spikes. Yet it’s not just Florida renters dealing with the price hikes. Austin, TX, Memphis, TN, San Diego, CA, and Las Vegas, NV join those Florida cities in seeing rent spikes of more than 25% in the last year.

What You Need To Know

  • Rent prices continue to surge across the nation and don’t look to decrease anytime soon.
  • Homes for sale are at an all-time low, which in return has increased rental prices.
  • The demand is extremely high for rentals, but rental vacancies are at 5.6% – the lowest since 1984.
  • Abrupt rental hikes have impacted the U.S. economy and continue to contribute to higher inflation.
  • Inflation has increased 7.5% in the last year, which is the largest jump in four decades.
  • Economists are predicting that rent prices will keep inflation high throughout 2022.

What’s Causing High Inflation?

With rents on the rise across the country, the exorbitant prices continue to impact the U.S. economy through higher inflation. Recent data from the Department of Labor covers both existing rents and new listings. The federal agency’s data shows that rents have increased 0.5% in only one month from December 2021 to January 2022. While that seems minimal on the surface, that’s the largest increase in one month in 20 years.

Large price hikes in new leases feed into the U.S. consumer price index, which measures inflation. That’s why economists are worried about rent prices impacting inflation and the economy as a whole. Dating back to January 2021, inflation went up 7.5% in the last year, which is the largest jump in more than 40 years.

Another factor in higher inflation is the fact that the Covid-19 pandemic disrupted supply chains across the country as well. Economists expect inflation to decrease as supply chains slowly get back to normal. But since housing costs are one-third of the consumer price index, experts are predicting that increased rent prices could keep inflation high throughout 2022.

What’s Responsible for Astronomical Rent Hikes?

There are several factors in play when it comes to the current state of increased rent prices across the country. Experts point to a nationwide housing shortage and low rental vacancies as a leading cause of the rent hikes. The demand for rentals is there, but housing availability is not. In addition, young adults continue to enter a crowded rental market, which has also added to the housing shortage.

The pandemic impacted the housing market as well. Early on when the pandemic first hit the U.S., many people, especially young adults, moved back into their parents’ home. As vaccines became more available and pandemic-related policies softened, the economy began to open back up. That’s when many young people began moving out on their own, and rents began to skyrocket.

During the fourth quarter of 2021, rental vacancy rates fell to only 5.6% across the nation. That’s the lowest rental vacancy rate since 1984, according to the U.S. Census Bureau. Realtor.com’s chief economist Danielle Hale recently opened up about the ongoing issue to FOX Business.

“Without a lot of rental vacancy that landlords are accustomed to having, that gives them some pricing power because they’re not sitting on empty units that they need to fill,” Hale explained to the outlet.

To add to the complexity of surging rents, homes for sale are at an all-time low. With less housing up for sale, home prices continue to increase for buyers. Therefore many higher-income households have chosen to remain renters, which has increased rental prices in return.

The pandemic also contributed to labor and material shortages in 2020. Since construction crews struggled to stay staffed and often had issues with their supply chain for needed materials, a preexisting shortage of new homes became even worse. According to Realtor.com’s analysis, that left a deficit of 5.8 million single-family homes. That’s 51% more of a new home shortfall than the end of 2019.

Record Number of Investors Driving Up Rent Prices

Further compounding the issue of high rents is a record-setting number of investors buying up real estate in metro areas. In the third quarter of 2021, businesses or institutions bought an all-time high 18.2% of U.S. homes on the market. No longer did they solely focus on NYC, Los Angeles, or San Francisco. Instead, investors bought in popular cities for people relocating from even pricier cities. Those include Atlanta, Phoenix, Charlotte, Jacksonville and many more.

In most states, investors aren’t hindered by rent control. Only California and Oregon have statewide rent control laws. Other states like Arizona have laws that protect landlords from limiting what they can charge tenants.

For example, a California developer recently bought an apartment complex in Tucson, Arizona that catered to older citizens. The developer raised rents by more than 50% when they took over, which forced many out of their homes. Rent for a one-bedroom apartment on the property specifically jumped from $579 to $880 per month. By Arizona state law, the rent hike is completely legal.

Realtor.com’s chief economist also shared that she expects rents to continue to rise nationally. Yet she predicts that increased construction should slow the pace of rent hikes going forward. The economist is forecasting rents to spike 7.1% in 2022.

“Improving supply growth should help create more balance in the market,” Realtor.com’s Danielle Hale shared.