The decline of homeownership has moved more people onto the rental market, pushing asking prices up at an alarming clip.
Among the people I know who are renters -- people who are not shielded by strict rental control -- this question regularly comes up: The last time you renewed your lease, how much did your rent increase?
The answer is invariably of interest because it conveys something about the rental market that is more precise – and more personal – than a general sampling of Craigslist ads. Sure, if you're searching for a new place, you can get a good sense of the unspoken consensus that landlords are now pricing two-bedrooms near the subway at about $2,400 a month. But what does it mean when your two-bedroom, where you've been living for the last two years, suddenly costs $75 more this November than it did last November, sans renovations? Clearly, that's steeper than the rise of inflation.
In this situation, I've felt myself (and my friends) making some admittedly imprecise calculations. $20 feels like a steal. $50 seems sort-of reasonable. $100 may have been justified by that kitchen renovation. More than that – on principle and looking at your paycheck – is worth the giant hassle of moving. (Feel free to calibrate these numbers according to your own rent payment, internal price compass, and local rental control laws.)
As renters, we vaguely internalize the rise and fall of the broader market when confronted with that annual lease renewal notice. I at least factor in some not-particularly-accurate idea of inflation. And then we translate that general sense of what's going on with the housing market into a specific determination of what is, for us, "fair."
This relationship between rising rent, inflation and relative "fairness" came to mind when the Census Bureau released updated data today on housing vacancy and homeownership rates. Not surprisingly, homeownership has continued to tick down (by 0.2 percentage points from the third quarter of last year), as rental vacancy rates have dropped as well (nationwide, they're now down to 8.3 percent, from 11.1 percent back in 2009).
Meanwhile, this is what the median national asking price for vacant rental units looks like, dating all the way back to 1995:
That graph doesn't factor in inflation (and it would obviously look different if it showed only metro New York or San Francisco, and not the entire nation), but we can make some rough calculations on our own. If you were paying about $425 a month back in 1995, your rent today – all else being equal – would be about $650. As of the third quarter of this year, though, the median asking price is $736.
Compare that graph to asking prices on vacant for-sale homes:
Since the eve of the recession, the two lines have diverged, which is a simple way of visually confirming what you've probably already seen around you: The decline of homeownership has moved more people onto the rental market, pushing rental vacancies down and the asking price for available units up. Your renewed lease simply follows suit. And no, the main culprit is probably not inflation.
So how will these trends color how you feel about your next (or latest) lease? In the abstract, it seems entirely reasonable for a landlord to ask for what the market will bear. But, of course, it rarely feels fair to pay more for the exact same product. Perhaps the more relevant question is this: How much of an increase would you live with knowing that that number is grounded on nothing that you, or your landlord, have actually done? Where would you set your apartment's peak rent?
Top image: Flickr user Drab Makyo.